Behind the worries of deflation: the essence is the lack of line- FT???
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Europe and the United States are worrying about inflation, but China is discussing deflation.
Is deflation really here? Where did all the money go? The good news is that it’s not really deflation yet, and the bad news is that deflation might actually be on the way.
Is it deflation or inflation?
In April 2023, the National Bureau of Statistics of China released data showing that the CPI in March fell by 0.3% month-on-month and rose by 0.7% year-on-year; the PPI continued to remain flat month-on-month, down 2.5% year-on-year.
In the past situation of China‘s economy, CPI and PPI tended to rise year-on-year. This unaccustomed data has caused many experts to exclaim that deflation is coming and sparked discussions. In fact, although the CPI is falling, it is still higher than zero after all. The correct term should be “lower inflation”, but saying this lacks news points, and saying “deflation” is much more sensational.
As a term in economics, deflation has its specific connotations. From the definition of the International Monetary Fund, it is generally believed that prices have continued to fall for two years. If you want to lower it a bit, look at technical deflation, then you also need the overall price level indicator to be at least three years old. Month-to-month decline, that is, the consumer price index CPI or GDP deflator has been lower than zero year-on-year for three consecutive months.
The current one-month slight data change cannot really be called deflation. So how to look at this data? The interpretation of the chief statistician of the National Bureau of Statistics tends to believe that the economic situation has improved and prices have been too high in the same period last year. Affected by the accelerated recovery and the price trend of some bulk commodities in the international market, the national PPI was flat month-on-month; affected by the high comparison base in the same period last year, it decreased year-on-year.”
It is true that many daily necessities have begun to decline, such as the prices of pork and other foods that people are most concerned about, but if you care about daily consumption, many people have reported that prices of many things and services have increased since the epidemic. Perhaps, compared with saying that the situation is good, the greater value of this data is that it makes us think about the possibility of China‘s economic downturn. Compared with technical analysis such as currency multiplier, social financing scale, M2, etc., the core of most people’s concern is how to have more opportunities for themselves, or in other words, not so short of money.
Why are you short of money?
Facing the pressure of economic downturn, calling for further easing is the meaning of the question. In the era of rapid growth in the past, both experts and the public seemed quite confident that printing money could solve the economic downturn.
The reality, however, is that easy money only works if the economy is stalling because of a lack of credit. The current monetary policy is loose enough. From the financial statistics and social financing scale data report in the first quarter of 2023, in March 2023, M2 increased by 12.7% year-on-year, RMB loans increased by 3.89 trillion yuan, an increase of 749.7 billion yuan year-on-year, and social financing increased by 10% year-on-year, returning to the two digit growth rate. In the first three months, the total new social financing scale reached 14.5 trillion yuan.
It can be said that a lot of money has been distributed. The natural question is who is sending the money and where did the money go? In fact, the amount of money is not simply determined by the central bank. The endogenous nature of money means that the amount of money will change with the needs of the economy. When the economy heats up, money is naturally created through credit activities, and when the economy is frozen At present, various economic entities choose to reduce leverage or repay loans in advance, and the growth rate of money will naturally decline.
Currency is not water, but honey. This is the classic metaphor of Hayek, the liberal master. The area it moistens is not evenly moistened by rain and dew. Currency is like honey, which also means that its flow reflects the distribution principles of power and the market. With the current loosening of credit, large enterprises, especially state-owned enterprises, have the opportunity to obtain more loans, but they have not stopped because of the lack of good investment opportunities, while a large number of small and medium-sized enterprises are still underserved, not to mention whether they have the opportunity to expand their balance sheets desire.
In this case, the deposits generated by a large amount of credit did not flow, but stayed in the book or purchased wealth management products in large quantities, which is the so-called financial idling phenomenon that everyone is familiar with. The large number of small and medium-sized enterprises that employ the most workers have not benefited from more liquidity from the credit expansion, and there have been no positive changes in investment, employment, wages, etc. Naturally, most people still feel short of money. For them, the deflationary Feelings are real.
The essence of deflation is lack of money
Given a choice, would you prefer deflation or inflation?
This is not a giveaway question. The option of choosing the lesser of two evils, for many people, it seems that deflation is “not bad” than inflation. After all, most investment and financial management books on the market will tell you with certainty that inflation is the worst enemy of your assets. As consumers, the public’s fear of deflation is far lower than that of inflation.
But in fact, the deflationary world is not rosy. Not to mention the dark ages after the Great Depression, cases like Japan are just around the corner, where there was no price increase in the “lost two decades” and at the same time the economy lost vitality and opportunity. A deflationary world is especially brutal for young people, meaning frozen jobs and stagnant incomes.
When talking about deflation and inflation, the most qualified person is probably Keynes, the originator of macroeconomics. It was his thinking and theory that made people get back on the road from the deflation and chaos of the two world wars. For inflation and deflation, he also has his own insight, in a word-inflation is unfair, deflation is not smart, “The harm of inflation is mainly to change the distribution of wealth, while the destructive power of deflation is mainly to hinder wealth. produce.”
In other words, as long as there is no hyperinflation like the gold bill, Keynes seems to be more inclined to think that inflation is better than deflation in most cases. A moderate price increase is actually a relatively comfortable state for many people.
Deflation or inflation is not only a change in price, but also behind it is confidence in the future trend of assets. At the moment of inflation, everyone expects to increase leverage, and earn money by buying assets or holding liabilities; while in the era of deflation, everyone tends to reduce debt and consumption levels. The current prepayment is just a prelude. If you are in a big city, you will find that a trend has become popular. In the past, the qualifications for buying houses were tight, and everyone replaced them, basically replacing small houses with higher-value big houses, but now many people choose to replace big houses with small houses. , exchange some cash, and it’s safe.
Many years ago, in the midst of voices worrying about inflation, I said in the “Xu Jin Economic Man” column that for the Chinese economy, the probability of deflation is far greater than inflation. At the time this assertion seemed unthinkable, but time may prove its logic.
For an economy, after adolescence-like rapid growth, the rate of return on investment decreases, the economy is likely to stagnate, and people’s income and consumption power will decrease accordingly. Deflation is a common state, and we all need the possibility to come Get ready for deflation – yes, lack of money will be the main thread in the future.
Note: This article only represents the author’s own point of view. Xu Jin is the manager of the official account “The most important thing is the economy”, and the reader is WeChat ashes-18
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