Fear of deflation as Chinese hold back on gadgets, getaways

on January 22 2015 | in Daily Headlines Trending | by | with No Comments

Lennon Yu may be Beijing’s worst nightmare: the 24-year-old is willing to wait for car prices to fall before buying. This mindset, if it becomes widespread, could threaten to trap China’s cooling economy in a deflationary rut.

With the world’s second largest economy growing at its slowest in nearly quarter of a century, risks of deflation in China are growing just as a slump in global oil prices raises similar concerns in Europe and other parts of the world.

Consumer inflation eased in 2014 to a near 5-year low and policymakers are worried it could fall further because factory gate prices have been dropping for almost three years.

Chinese consumers are also curbing spending on nice-to-have items, a Reuters analysis shows, and there are signs more people are choosing cheaper products. Paired with sales engineer Yu’s waiting game, these trends could push retailers to cut prices.

“The consumer sector has passed its golden growth stage,” said Jessie Guo, consumer equity analyst at broker Jefferies. “A meaningful recovery in retail sales seems unlikely, given volatile consumer sentiment, low CPI and a lackluster economy.”

Read more at Reuters.

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