The Tribune

By CHRIS ILLING

CCO @ ActivTrades Corp

Everyone in The Bahamas is feeling the rising cost of goods, energy and transportation. No matter if you visit the food store, turn on your AC or fuel up your car, you are paying more for these necessities than compared to the previous year. But the inflation rate in the islands is decreasing, and went down from 3.1 percent to 2.3 percent when compared to last year.

In 1974, we had a record inflation of 14.24 percent year-over-year, and in March 2016, The Bahamas had a record low inflation rate of -1.42 percent. High inflation is occurring worldwide, and central banks are working diligently to bring it back down to around 2 percent.

On Thursday last week, China’s statistics office announced in Beijing that the prices of goods and services fell by 0.2 percent compared to the same month last year. The Chinese economy has slipped into deflation again. After July, October was the second month this year in which consumer prices fell. They stagnated in September, after rising slightly by 0.1 percent in August.

Deflation is the opposite of inflation, and refers to a decline in the general price level. A general fall in prices occurs when consumers hold back on purchases in anticipation of prices falling further. At first glance, consumers benefit because they pay less for goods and services. However, deflation usually puts pressure on the profits of companies and therefore carries the risk of wage cuts or lay-offs.

Unlike in the West, the Chinese have not had to contend with such high inflation in recent years. While prices worldwide rose by an average of 8.8 percent in 2022, it was only about 2 percent in the People’s Republic. Global inflation is expected to fall to 6.6 percent in 2023 and 4.3 percent in 2024.

The fact that the Chinese economy is now slipping into deflation is a sign of ongoing economic weakness. There are several reasons why the Chinese are reluctant to consume. One reason is the ailing real estate market. Because the value of their homes is falling, many people are retaining their savings because of the uncertain real estate market. On the other hand, the rents do not rise as much or even fall, which also contributes to deflation.

Another point for deflation is that numerous electric car manufacturers are engaged in a fierce battle for customers. This has led to high discounts, which leads to falling prices for new electric vehicles. A special factor in China’s inflation statistics has always been the price of pork, which accounts for a relatively large share in the calculation of consumer prices. Due to an oversupply of pigs, prices have fallen significantly recently.

Most economists consider deflation to be more dangerous for the development of an economy than slightly rising prices. So be careful what you wish for.