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I think a lot of that "deflation" is commodity prices. Corn has gone from 8$ to 4$ because of the decline in oil prices for example.
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WSJ
Updated Oct. 14, 2015 7:26 a.m. ET
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Global stocks fell Wednesday after a slowdown in inflation in China added to concerns about weakening growth.
U.S. stock futures and European shares followed Asian markets lower after data showing lower than expect Chinese inflation in September, a day after disappointing import and export data from China dented stocks around the world. The consumer-price index rose 1.6% in September from a year earlier, compared with a 2% rise in August.
Futures indicated a 0.1% opening loss for the S&P 500 following Tuesday’s small declines, as shares on Wall Street snapped their seven-session winning streak. Changes in futures aren’t necessarily reflected in market moves after the opening bell.
The Stoxx Europe 600 was down 0.7% midway through the session, deepening losses from Tuesday.
Most Asian indexes declined amid fears Beijing would miss its year-end growth target. The Shanghai Composite Index closed 0.9% lower, while Hong Kong’s Hang Seng Index lost 0.7% and Japan’s Nikkei Stock Average fell 1.9%. China’s third-quarter growth figures are due for release on Monday.
Chinese markets had initially rallied as the data propped up expectations for new stimulus measures, though the optimism quickly waned.
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The recent losses come as last week’s global stock rally runs out of steam. Although some of the worst fears over the global economy have eased, the latest run of weak Chinese data has reminded investors that a slowdown in the world’s second-largest economy is likely to hold back growth elsewhere.
********“Fears of imminent financial catastrophe were overdone. But most people see that the growth capacity of the global economy probably diminished over the summer,” said Guy Foster, head of research at wealth manager
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It's not that China is "only" growing at 7% (or probably less). It's the fact(s) that their growth for the last 7-8 years was stoked by huge amounts of infrastructure construction. This required huge quantities of copper and other metals, fuel and most other commodities. That all stoked the emerging country economies and companies within those countries, as well as companies in developed nations. Now those EM companies are leveraged with a lot of very cheap debt that came from US and other world banks and now the demand for these commodities is greatly on the wane.
The "fear" is that if the US Fed starts to bump interest rates it will trigger defaults which will ripple through those lending banks. This is what GS is saying could be the 3rd wave of the global financial meltdown which started back in 2008. It's not a for sure thing, but it's a risk and it could trigger another recession which we are a bit overdue for. That's why the IMF came out with it's "warning" and has encouraged the FED to hold off on any rate bumps through at least the rest of 2015.
Yesterday I saw that the general feeling is now that the Fed may hold off until March as it's likely that overall world economies will continue to show weakness. The IMF also is encouraging developed nations to undertake any necessary infrastructure construction/spending which will help stimulate the demand for commodities and help EM companies.
It's all part of the global economy being more and more intertwined than ever, and it's expected that this transition will take several more years as the Chinese and other country middle-class gets developed. As well our country's echo-boomers are coming into their own as they come into the traditional higher earning and spending years.
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