Inflation stories are all different. While price increases are tending to normalize in the Eurozone and the United States, China is on the verge of becoming deflationary, and Japan, long deflationary, is experiencing a 4% price increase.

American and European inflation can be treated in much the same way. The acceleration in inflation, from spring 2021 to its peak in mid-2022, is the accumulation of a succession of shocks. The rise in energy prices after the health crisis, rapid demand after the depression linked to other Covid-related events, companies running out of inventory, and shortages of spare parts are all factors that are inflationary.
But the disappearance of the causes led to the normalization of inflation. And one can question a counterfactual in which central banks would not have intervened and the effectiveness of the mechanism since services inflation remains unresolved. The restrictive fiscal policy in 2023 and 2024 was perhaps a more effective instrument by directly and significantly impacting demand.

In Japan, the story is quite different. Since the mid-1990s, the economy has been characterized by deflation and a highly accommodative monetary policy that has been unable to reverse the trend. But the Japanese have suffered from rising energy and international prices. Adapting to this new environment has been slow to materialize.
In a recent article in the Financial Times, a Tokyo shopkeeper testified, “A few years ago, stores and food companies used to apologize when they raised prices, but now they don’t seem sorry: they just go ahead and do it.” The process has begun, and the government wants to take advantage of this situation to definitively escape the deflationary risk that remains a threat given the decline in Japan’s population, which is penalizing demand. The process in this terra incognita will be full of lessons.

In China, the risk is deflation. Since the beginning of 2023, the price index has been flat, and the inflation rate fell in February. To understand the direction taken, the finger is pointed at weak consumer demand. And that’s right. Penalized by the real estate market, Chinese consumers are worried.
Yet we can’t stop there. Demand also means investment. Its real estate component has collapsed, but the manufacturing sector has been robust, driven in particular by the automobile industry. As in Western countries, the automotive sector in China is a force that structures the economy. Five years ago, production capacity was 40 million vehicles. Since then, 20 million electric vehicles have been added. This trend will not continue. Demand will truly be less strong, and the risk of deflation is likely.