China’s Rate Move Avoids Weaker Prices

The specter of deflation has settled over vast tracks of the global economy, forcing countries large and small to assess the risks of falling prices.

Major economies such as Japan, Germany, the United Kingdom and the United States are all experiencing ultra-low inflation or outright price decreases. Emerging markets like Thailand are under pressure. Deflation is widespread across Europe, and prices have been sliding for years in trouble spots like Greece.

Now the alarm has spread to China. The People’s Bank of China slashed interest rates at the weekend to keep prices from weakening too quickly.

“[The central bank] has clearly become more concerned about deflationary pressure in recent weeks,” said Tao Wang of UBS. Inflation is now running at 0.8% in the country, a five-year low.

What’s so bad about paying less for stuff? Consumers are right to cheer — so long as their country is experiencing “good deflation.” In places where price declines have been driven by falling energy prices, for example, people can save a little more or spend a little more.

Technological advances can also result in price reductions. Flat-screen TVs or cameras, for example, are much cheaper now than just a few years ago. For the same price, customers walk away with much improved products.

via CNN

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza