China slowdown may help Canada's inflation fight

China's economic challenges, including deflationary pressures and a slowdown in various sectors such as real estate, are likely to have a global impact and may continue to depress inflation in both China and other markets, with discounting expected to increase in the coming quarters.

Falling prices in China, driven by a weakened economy, could benefit countries with elevated inflation such as the U.S., India, Germany, and the Netherlands.

Analysts have lowered their short-term forecasts for the Canadian dollar due to China's weakening economy and the widening yield gap between the US and Canada, but still project the currency to strengthen in the long term.

Treasury Secretary Janet Yellen states that U.S. growth needs to slow to its potential rate in order to bring inflation back to target levels, as the robust economy has been growing above potential since emerging from the COVID-19 pandemic. Yellen also expects China to use its fiscal and monetary policy space to avoid a major economic slowdown and minimize spillover effects on the U.S. economy.