What divergent US and China tacks on inflation mean for investors

MANAGING inflation presents a tricky conundrum for central banks, with major implications for economic growth and capital investment. It is about setting an interest rate level that keeps the speed of price rises reasonable while allowing for healthy growth, with government spending and tax policies playing a supporting role.

But striking that balance is far easier said than done – as is clear from the starkly different situations now facing the world’s two biggest economies, and their respective responses.

There looks set to be another year of disinflation – slowing price rises – in the US, although the oil price recently exceeding US$95 has raised a few doubts. For China, though, the deflation – actual falling prices – that arrived last month could stretch into 2024.