China’s zero-inflation troubles getting harder to ignore

China’s deflation troubles became harder to spin with news that factory prices fell for a 27th straight month in December and that consumer price changes are effectively zero even before Donald Trump’s trade war begins.

The 2.3% drop in wholesale costs year on year and negligible 0.1% rise in consumer prices will only intensify speculation about why President Xi Jinping’s team isn’t acting more assertively to boost confidence. That’s nowhere more true than in China’s bond market. Yield dynamics suggest traders have never been so pessimistic on Beijing’s ability to avoid so-called “Japanification.”