While the U.S. has been suffering from severe post-covid inflation, China’s prices have been spiraling lower. What’s up with that?
- Post-covid supply disruptions & shortages are the well-known culprit of U.S. inflationary pressures that has plagued the economy, hitting lower-income consumers particularly hard.
- On the other hand, China has experienced significant post-covid deflation with its CPI index declining from 100 at February 2020 to 0 currently (vs. the U.S. CPI index which expanded from 100 to almost 120 during this same period).
- Analysts attribute China’s deflation primarily to declining transportation & food prices (notably China’s pork prices are down -26% y/y). Further, China’s economic slowdown has led to lower demand & prices for raw materials & commodities (although this doesn’t seem to be the case in the U.S.).
- The challenge posed by China’s deflation is that it will make it difficult for U.S. producers to match China’s export pricing, possibly translating into lost domestic market share.
- U.S. policymakers would do well to explore: (1) why there has been such a material divergence in U.S. & China prices; and (2) how to keep U.S. manufacturers from losing share from this odd anomaly.