Tuesday, February 24, 2009

Article - China risks deflation

Feb 24, 2009 (ST)


China's producer price index (PPI), a measure of inflation at the factory level, decelerated sharply to an annual rise of 2 percent in November. It was the slowest pace for the PPI since May 2006

SHANGHAI - CHINA is facing deflationary risks due to overcapacity in many industries amid a sharp downturn in demand, the central bank said in a report issued late Monday.

'Against the backdrop of shrinking general demand, the power to push up prices is weak and that for driving down prices is strong,' the People's Bank of China said in its report on fourth quarter 2008 monetary policy.

'There exists a big risk of deflation,' said the report posted on the central bank's Web site.

While falling prices might seem a welcome trend, a long spell of deflation can lead to destructive declines in wages, stocks and property prices, sapping corporate profits and prompting businesses to cut jobs and investment.

China's consumer price index, which had spiked last year to 12-year high of 8.7 per cent, has eased to 1 per cent in January.

Meanwhile, wholesale prices fell 3.3 per cent, the second straight month of decline, as costs for oil and other raw materials eased.

Such a fall in wholesale prices, which measures the cost of goods as they leave the factory, can indicate an impending decline in consumer prices.

The central bank's comments underscore China's challenge in balancing policy to suit fast-changing global and domestic pressures.

Until July, it noted, the prevailing concern was with surging inflation. But a sharp decline in demand for many products that began in the autumn has left many industries with excess inventory and too much production capacity - a chronic problem even before the downturn.

China's torrid economic growth slowed to a seven-year low of 9 per cent in 2008.

But the central bank also warned of potential longer-term risks from inflation due to the worldwide effort to expand credit and increase liquidity in the global financial system. -- AP

Questions

  1. From the article, what are the causes of deflation in China?
  2. Why would the Central Bank be concerned about deflation?
  3. Explain why credit expansion and increased liquidity globally may lead to inflation in the future

3 Comments:

Blogger 林磊 said...

2015-10-28leilei
nike air max 90
Canada Goose Outlet,Canada Goose Outlet Online,Canada Goose Clearance
michael kors bags
michael kors outlet
Air Jordan 8
Louis Vuitton Handbags Official Site
coach outlet online
coach outlet
abercrombie store
tory burch sale
michael kors outlet
Christian Louboutin Sale For Men And Women
Michael Kors Handbags Outlet
authentic louis vuitton handbags
coach outlet
Michael Kors Outlet Sale Online
fitflops sale clearance
michael kors outlet
true religion jeans
north face outlet
Michael Kors Outlet
Michael Kors Handbags Outlet Online
michael kors uk
Canada Goose Jackets/Coats And Parka Online
michale kors outlet online
coach factory outlet
Louis Vuitton Handbags On Sale
ugg boots wholesale
Louis Vuitton Outlet Online Shop
nike shorts,nike hoodies,nike town,new nike shoes,nike tennis shoes,air max 97,nike shop,nike basketball
Official Coach Factory Outlet Online
montblanc pen
ugg boots on sale
Mont Blanc Pens
Canada Gooses Sale,Canada Gooses Jackets,Canada Gooses Coats,Canada Gooses Parka

10:52 AM  
Blogger Chen Mr said...

michael kors outlet store
canada goose sale
rolex watches for sale
nike cortez classic
discount oakley sunglasses
adidas yeezy boost
discount oakley sunglasses
kd 8 shoes
discount oakley sunglasses
rolex replica watcheszhi20161229

10:56 PM  
Blogger Unknown said...

jianbin0317
jordan shoes
cheap oakley sunglasses
adidas wings
nike roshe
beats headphones
coach outlet store online
louis vuitton outlet stores
louis vuitton outlet online
christian louboutin sale
pandora outlet

7:03 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home