China appears to be stuck in a deflationary trap, with even the pressures sparked by the Iran war failing to boost prices.
Beijing has long struggled to drive domestic consumption, while brutal competition in many industries has pushed producers to cut prices, triggering a vicious cycle in which people hold off on purchases in anticipation of coming discounts.
And while the conflict in the Middle East temporarily warded off deflation, the gains have since subsided as Chinese industry continues to run below capacity, the chief economist for Asia Pacific at French bank Natixis argued. Few expect the downward pressure to let up soon. “The world’s second-largest economy will remain stuck in a trap of its own making,” Eurasia Group predicted.
