Chinese wholesale inflation fell to negative 3.3% in January compared to a year earlier, effectively ending the inflationary spiral regulators were afraid of in the lead up to the Beijing Olympics last August. However, the latest numbers out of Beijing now bring a threat of deflation to the world’s third-largest economy.
Our comment: The decline is not surprising. And it won’t last: The Chinese government’s intention to spend upwards of 4 trillion yuan on public works projects as part of its fiscal stimulus package, the inherently inflationary nature of government spending will reduce the deflationary threat.
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