Chinese Deflation Picks Up Steam; Recovery a Mirage

Consumer prices are falling year over year in China. Bear in mind that falling prices do not constitute deflation which is a monetary phenomenon (a reduction in money supply and credit) not a price phenomenon. In this case we see both.

Please consider Inflation Falls in China.

China's inflation rate fell for the third month in a row in April as prices for foods and energy plunged from high levels the year before.

The consumer price index, which is heavily weighted toward food items, fell 1.5 percent in April from a year earlier after declining 1.2 percent in March, the National Statistics Bureau reported Monday.

Food prices fell 1.3 percent, with prices for meat falling 13.5 percent, the bureau said in a statement on its Web site.

China's inflation rate peaked early last year amid surging costs for food and energy.

Deflation is expected to persist for several months due to excess inventory in many industries amid the global economic downturn. Sharp declines in crude oil prices and costs for other commodities will ensure that.

But signs of economic recovery in China suggest a reduced risk for a prolonged bout of lower prices that could drag growth lower if consumers put off purchases in expectation of lower prices, forcing companies to cut wages and investment, economists say.

The government has pumped billions of dollars into construction projects and other spending aimed at stimulating demand and propping up growth. Recent improvements in manufacturing, auto sales and real estate transactions are seen as evidence the strategy has begun to work, despite persistently weak demand for Chinese exports in overseas markets.

"Deflationary concerns appear to be subsiding as the economy shows signs of recovery," Jing Ulrich, chairwoman for China equities at J.P.Morgan said in a report to clients.

Keynesian Nonsense

In contrast to what Keynesian clowns believe, there is no recovery, only another artificial boom, and a mini-boom at that. Printing money can "stimulate" (using the word incorrectly), only as long as the spending continues.

Easy money and unwarranted stimulus created the global housing bubble. Now Keynesian clowns think it will do something productive. It can't, therefore it wont.

In regards with China, there is massive overcapacity already. US consumers are still retrenching. Adding to China's productive capacity is exactly the wrong thing to do at this stage. The export model is dead. The Shopping Center Economic Model Is History as well. Thus "stimulus" (here and in China) is guaranteed to fail, leaving still more overcapacity when it does.

Green shoots are a Keynesian mirage.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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