There is Chinese inflation data due this weekend – CPI and PPI for January 2025

Data due on Sunday at 0130 GMT, which is 2030 US Eastern time on Saturday is expected to show Chinese inflation (CPI) barely stumbling along above deflationary territory:

Deflation—when prices decline over time—can be harmful to an economy for several reasons:

1. Delayed Spending and Investment – Consumers and businesses may postpone purchases and investments, expecting prices to fall further. This weakens demand and slows economic activity.

2. Rising Debt Burden – Since wages and incomes typically decline during deflation, the real cost of repaying debt increases, making it harder for households and businesses to manage their obligations.

3. Lower Corporate Profits – As prices drop, businesses earn less revenue, which can lead to cost-cutting measures such as layoffs and reduced investment, further weakening the economy.

4. Higher Unemployment – Declining revenues force companies to cut jobs, increasing unemployment and reducing consumer spending, creating a vicious cycle of economic contraction.

5. Monetary Policy Challenges – Central banks typically use interest rate cuts to stimulate growth, but if rates are already low, they have limited tools to combat deflation effectively.

Overall, deflation can lead to a downward economic spiral, reducing growth, discouraging investment, and increasing financial instability.

This article was written by Eamonn Sheridan at www.forexlive.com.