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Is deflation irreversible?

Fonte/Source, ReutersFears about deflation have been growing for some time now, and the euro area is already seeing falling prices year on year on its headline measure. However, much of the downward pressure on inflation around the world to date has been due to falling commodity prices. If China allows the renminbi to depreciate then there could be much more to come.

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Our chart shows the price of Chinese exports to the US in US dollars and in renminbi. The price of China’s exports to the US, when measured in US dollars has risen less than 5% over the past ten years. But the renminbi underwent a steady appreciation against the US dollar over that period. Strip out the currency effects, and the renminbi price of those exports actually fell by almost 25%, and that at a time when China’s economy was growing rapidly. Now imagine what might happen to the local currency price of those exports if China were to suffer a hard landing, and growth were to slow to the low single digits. Add to that the consequences of a depreciation in the renminbi, and it becomes clear that, were China to abandon the dollar peg, then it has the potential to export substantial amounts of deflation around the world.

 Fonte/Source, http://alphanow.thomsonreuters.com/2015/01/chart-week-deflation-just-beginning/?adbid=559786829193302017&adbpl=tw&adbpr=14412844&cid=social_20150126_39417517

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