The April 2018 Elliott Wave Theorist said that social mood is about to accelerate toward the negative.
That issue of the Theorist listed a number of expected consequences of a historically negative social mood trend, and one of them is this:
Deflation will rage around the globe.
The development of this negative social mood trend is in its early stages. Yet, the world's second largest economy is already grappling with the prospects of deflation.
Just about every economic measure is trending down in China, and not surprisingly, deflation fears are mounting. The China Beige Book (CBB) fourth-quarter preview, released Dec. 27, reported that sales volumes, output, domestic and export orders, investment, and hiring all fell on a year-over-year and quarter-over-quarter basis.
A much-weaker 2019 appears to be in the offing for China, but it's not solely due to trade tensions with the United States. The domestic economy was already on weak footing and the CBB argues that government support is unlikely.
The CBB is a research service that speaks to thousands of companies and bankers on the ground in China every quarter. It contends that deflation is the bigger threat compared to inflation.
"Because of China's structural problems, deflation has very clearly emerged as the bigger threat in a slowing economy than inflation. Consumer demand has weakened, and you see that reflected in retail and services prices," said... CBB managing director, in an interview.
While lower prices look good for consumers, policy-makers don't like deflation for a number of reasons. With prices falling, companies produce less, often lay off workers, and reduce investment, leading to a vicious circle of sorts. While the trade war hurts export-sensitive regions, local orders have now weakened for two straight quarters.
Hiring fell for the first time since early 2016. Worse still, the fall was concentrated in services and retail, two sectors being counted upon to pick up the slack left by manufacturing's woes.
Also, debt--of which China has plenty--becomes more problematic under deflation, as its value adjusted for inflation rises.
And it's an issue for central bankers, who typically target 2 percent inflation for price stability. Rate cuts to spur the economy and inflation are less effective, since the real interest rates are higher when accounting for deflation.