In the News Teaching Activity – China’s economy experiences deflation in October (Nov 2023)
While the UK struggles with a cost-of-living crisis and inflation above target, the Chinese price level has started to fall.
China is facing a return to deflation with a decline in the price level of -0.2% in October, influenced by a significant drop in pork prices and other economic challenges. While falling prices might seem beneficial, they can be a risk to economic activity. The Chinese economy has been struggling due to COVID restrictions, high debt, unemployment, slowed consumption, production, and investment, worsened by a property crisis and weakened global demand. Experts warn of the potential consequences for business confidence and household spending due to ongoing deflation. Despite this, Moody's anticipates modest growth aligned with China’s government target of 5% for 2023 and 4% for 2024.
1 What is ‘deflation’?
2 Using the information in the article and your own knowledge, discuss the advantages and disadvantages of deflation for an economy.
3 Why does the UK have an inflation target of 2% rather than 0%?