China spreads deflation around the world and drops prices of goods in Brazil

China spreads deflation around the world and drops prices of goods in Brazil
China spreads deflation around the world and drops prices of goods in Brazil
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China thus began to “export deflation”, helping central banks in the rest of the world to control inflation. Chinese aid is even more valuable for emerging economies, where goods have a greater weight in inflation rates compared to rich countries.

Economists heard by the Broadcast (Grupo Estado’s real-time news system), including former directors of the Central Bank (BC), understand, however, that the Chinese contribution to the monetary authorities’ next steps will be limited. In other words, it should not be decisive for accelerating interest cuts in economies like Brazil, or for bringing forward the start of a monetary easing cycle in the USA and Europe.

This expectation is based on central banks’ focus on services inflation, which is more resilient and whose behavior is more determined by domestic variables.

For Bruno Serra, former director of Monetary Policy at the BC and currently manager of Itaú Asset’s Janeiro funds, China will have a relevant role in keeping industrial goods inflation low and helping with general disinflation throughout this year and next. It will not be enough reason, however, to lead to more aggressive Selic cuts, as family consumption continues to surprise in Brazil, driven by the heated job market.

“The impact of this [consumo] on services inflation, where we begin to see some first signs that disinflation has come to an end. We need the disinflation of goods coming from China plus a well-behaved exchange rate to be able to carefully achieve the market’s expectations for the Selic, between 9% and 9.5%”, comments Serra.

According to Robert Sockin, global economist at Citi, the sharp drop in the prices of products exported by China has been contributing to the global disinflation of goods, which was already happening due to the migration of spending to consumption, along with the normalization of production chains. “As long as inflationary pressures within China remain subdued, the Chinese economy will likely continue to contribute to downward pressure on global goods prices.”

The article is in Portuguese

Tags: China spreads deflation world drops prices goods Brazil

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