Chart of the Week: Another sign of China’s Japanification?

Persistent errors in consensus forecasts are a sign that economists have failed to recognise a trend. While there have been cycles in China’s inflation surprises (as measured from the Reuters Poll of economists), more often than not those surprises have been to the downside. Moreover, not only have those errors tended to be negative, but the magnitude of the ‘miss’ has grown over time.

There is plenty of talk about the risk that China’s economy ‘Japanifies’ — i.e., that it endures a prolonged period of low growth, low rates and low inflation. Inflation is now essentially at zero in China and, while many expect it eventually to rebound, historical experience tells us that the consensus has been too eager to call this in the past.

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