In recent years, both the United States and Europe have faced the pressing threat of elevated inflation ratesCentral banks across the Atlantic have responded with a series of interest rate hikes, yet the impact of these measures appears to be less effective than anticipatedUltimately, this situation can be traced back to the excessive monetary expansion that characterized the previous years, leaving these economies to grapple with the consequences.

Interestingly, discussions surrounding inflation often overshadow a potentially more pressing issue: deflationIn the context of China, it has been identified that the country too has seen significant monetary supply increases, having added around 31 trillion yuan to its economy over the past yearYet, experts argue that the real concern may not be skyrocketing prices, but rather a looming deflation that could hinder economic growth.

At the forefront of these economic concerns is the concept of consumption downgrade, a phenomenon that illustrates a shift in consumer behavior and economic activity

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Deflation is simply a decrease in the general price level of goods and services, which can lead to reduced consumer spendingWhen looking at Japan’s history, it becomes apparent how insidious deflation can beOver the past three decades, Japan has struggled with low inflation, stagnant wages, and a society increasingly reluctant to spendThe results can be seen in the decreasing birth rates and the growing trend of individuals delaying significant life decisions such as home purchasing and starting families.

Japan’s never-ending battle with deflation has seen its economy lose a generation's worth of growth—a sobering reminder of what could await other nationsComparatively, the effects of the pandemic have echoed across the globe, dampening consumer sentiment worldwide, with China not being an exception.

After enduring a protracted period of health crises, many individuals have started to dismiss their purchase intentions due to uncertainties about future economic conditions

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While some may argue that the increased standard of living has made cooking at home more appealing—perceived as healthier and more hygienic—this behavior often masks a desire to save moneyAmid economic uncertainty, many are opting to enjoy their meals at home rather than dining out, further contributing to a decline in consumer demand.

Evidence of this consumption downgrade can be found in the consumer confidence index, which indicated a staggering drop of nearly 30% year-on-year starting last AprilEven as we moved into this year, the figures remained disheartening, with year-on-year declines hovering between 21% and 25% despite the initial drop last year.

Underlying this shift in consumer behavior is a growing concern over employment and income expectationsThe employment rate has been on a downward trend in China, leading to widespread frustration among those grappling with an increasingly challenging job market

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As educational levels have risen, so too has the bar for obtaining suitable employmentRecent graduates find themselves struggling to secure jobs because employers expect higher educational attainment than ever before.

Adding to these difficulties is the rapid advancement of technology that impacts existing job marketsThe rise of artificial intelligence and automation has further exacerbated the problem, resulting in reduced job opportunities across various sectorsFor instance, positions once deemed stable, like those at banks, have seen severe cuts in staff due to advancements in automationEven what was once viewed as a secure “golden nest” job is no longer a safe haven.

In light of these conditions, the decline in retail sales data over the past several months is concerningThe last quarter of the previous year bore witness to three consecutive months of year-on-year negative growth

• $31 Trillion Surge in Money Supply Fuels Inflation Fears
• Empowering Financial Services with Large Models
• U.S. December Employment Data Surpasses Expectations
• Global Market Rout: Investors Flee Record US Equities
• Fostering a Positive Cycle of Consumption and Investment

Fortunately, there is a glimmer of hope as early indicators suggest an increase in sales by 3.5% year-on-year for January and February following the easing of pandemic-related restrictionsYet, a pressing question remains: how can this fragile growth be sustained?

Addressing deflation requires clear monetary stimulus strategies, but it is essential to ensure that money reaches those who need it most—the citizensChina has experienced substantial growth in its money supply, with a total increase of about 31 trillion yuan in the last yearHowever, the challenge lies in facilitating access to this liquidity for everyday people, as only when citizens feel financially secure will they be inclined to spendHouseholds must believe that money can reach their hands; otherwise, economic confidence will remain elusive.

Despite the extensive currency expansion, a significant amount remains trapped within financial systems, leading to concerns about economic bubbles and inefficiencies in the virtual economy