Will a recession be inflationary or deflationary?

It should be said that both inflation and deflation will eventually lead to economic depression, and the difference between the two is that inflation is prosperous in the early stage, while inflation is always accompanied by economic depression!!

Depression: A recession is a recession that lasts for more than 3 consecutive years, or when real GDP (real gross domestic product) is negative by more than 10%.

Inflation refers to the phenomenon of sustained and widespread price depreciation for a period of time caused by the actual demand for money being less than the money supply, that is, the actual purchasing power being greater than the output supply, resulting in currency depreciation under the condition of money circulation. The essence of this is that the total supply of the society is less than the total demand of the society.

(1) The impact of deflation on economic growth.

1. Promotion of withdrawal: Deflation will inhibit economic growth and even cause economic recession.

Rationale: A sustained decline in prices can reduce or even lose producers' profits, which in turn will reduce production or stop production.

A sustained decline in prices will hurt debtors, which in turn will affect production and investment.

Prices continue to fall, and a decrease in production and investment will lead to increased unemployment, a decrease in household income, and an exacerbation of the shortage of aggregate demand.

2. Promotion theory: Moderate deflation is conducive to economic growth.

Rationale: Deflation will lead to lower long-term interest rates, which will allow companies to invest in improving equipment and increasing productivity.

In a state of moderate deflation, the duration of economic expansion can be extended without threatening the stability of the economy.

If deflation is linked to technological progress and the improvement of economic efficiency, then the decline in the price level and economic growth can promote each other.

2) The redistributive benefits of deflationary wealth income.

1. The holder of the physical asset is damaged, and the cash asset will appreciate in value.

2. The creditor with a fixed interest rate profits, while the debtor suffers.

3. Deflation reduces corporate profits and transfers a part of wealth to residents; Deflation raises the real interest rate on corporate liabilities and further shifts income to individuals.

4. Transfer of wealth to the public.

Increasing real debt, lenders reduce expenses, ** assets, corporate profits decline, labor costs are reduced, lenders' income and assets** decline, lenders' real loans increase, and economic demand decreases (the vicious circle begins).

According to basic economic theory, deflation is caused by excessive supply and insufficient demand. An aggressive approach to tackling deflation should prioritize boosting effective domestic demand, supplemented by an increase in public spending, in order to ease the threat of deflation.

FYI.

A recession is deflation.

Deflation, also known as deflation, refers to when the currency circulating in the market decreases, the people's monetary income decreases, and the purchasing power decreases, which affects the price of goods and causes deflation. A prolonged period of monetary tightening will dampen investment and production, leading to higher unemployment and a recession. is the opposite of inflation.

However, deflation is more harmful to the economy and people's livelihood than inflation.

Generally speaking, moderate deflation, by intensifying market competition, will help readjust the economic structure and squeeze out the "bubbles" in the economy, and will also promote enterprises to increase their technological input and technological innovation, improve the quality of products and services, and have a positive effect on economic development. However, excessive deflation will lead to a long-term and large-scale decline in the overall price level, the tightening of the market monetary system, the slowdown of money circulation, and the sluggish sales of the market, which will affect the enthusiasm of enterprises in production and investment, strengthen the psychology of residents to "buy up and not buy down", and affect the "reluctance to invest" of enterprises and the "reluctance to buy" of residents, and a large amount of idle funds will limit the effective growth of social demand, which will eventually lead to weak economic growth and a decline in the economic growth rate. It is not conducive to the long-term development of the economy and the long-term interests of the people to return to the slag.

A recession is deflation. Deflation, also known as ignition deflation, refers to when the currency circulating in the market decreases, the people's monetary income decreases, and the purchasing power decreases, which affects the price of goods and causes deflation. Prolonged monetary tightening will dampen investment and production, leading to higher unemployment and a recession.

is the opposite of inflation. However, deflation is more damaging to the economy and people's livelihood than inflation.

No. China's CPI is expected to continue to remain moderate for the following reasons:

First, the food ** is generally stable. The overall supply of pork is guaranteed, and the increase is expected to be limited. In recent years, China's grain has been harvested continuously, and agricultural production has continued to maintain false stability.

Second, imported inflationary pressures have decreased. The global inflation center in 2023 is likely to move down compared with 2022, and the IMF expects that the global CPI in 2023 will decline significantly from 2022, and the imported inflationary pressure faced by China will decline significantly.

Third, the measures continue to be optimized, and the core CPI is expected to rebound. It is expected that the core CPI will gradually recover in 2023 from the current below the historical 10th percentile, and is expected to rise to above 1 in the second quarter.

Fourth, the impact of tail-end factors in 2022. In the fourth quarter of 2022, due to the reduction of external inflationary pressure and the repeated impact of the epidemic, the CPI has declined significantly, which will reduce the tail-end factors faced by China's CPI in 2023, which is conducive to maintaining a low year-on-year growth rate for the whole year.

Causes of deflation:

First, the production is overrun, and the supply of products is greater than the demand, which makes a large number of products unable to be sold, and as a result, deflation occurs. This is because, given that the economies of some countries have not yet been fundamentally freed from the constraints of overproduction, they are at risk of deflation if problems arise.

Second, demand is sluggish, except for a few countries and regions, countries due to the downturn, investment reduction and other negative impacts, so that their consumer price index has declined compared with the past. This is also an important factor in the emergence of deflation.

The above content reference: China Economic Net - Expert: It is expected that China's CPI will continue to maintain a moderate level in 2023.