What do high US inflation and China’s deflation risk mean for the global economy?

Rising income can offset the impact of rising inflation. “Real” income growth is adjusted to subtract the impact of inflation.

China’s April consumer inflation grew by 0.1 per cent from a year earlier in April – the lowest rate since February 2021, according to the National Bureau of Statistics.

US consumer inflation, meanwhile, saw year-on-year growth of 4.9 per cent in the same period, though this has declined for 10 consecutive months, the US Bureau of Labor Statistics said last week.

In its World Economic Outlook released in April, the International Monetary Fund estimated a 2 per cent rise in China’s CPI for this year, versus 4.5 per cent for the US.

Beijing’s officials tend to attribute the US-China disparity to the different approaches of both countries to counter the pandemic shocks.

In contrast to the US Federal Reserve’s unprecedented balance sheet expansion to a soaring US$8.5 trillion, Beijing has refrained from using a large-scale loosening and withdrew coronavirus stimulus measures as early as the second half of 2020.

From a technical perspective, both have different weightings in their consumer price baskets. US consumers have been more prone to spikes in global energy prices and supply-chain disruptions during the Russia-Ukraine conflict.

Ping An Securities estimated in March that industrial goods, which China has a strong ability to manufacture, accounted for nearly half of China’s core CPI basket, while industrial goods made up less than 22 per cent in the US.

Meanwhile, food accounts for 19 per cent of China’s basket, higher than 13.47 per cent in the US. Energy is weighted at 3.5 per cent in China, compared with 7 per cent in the US.