China’s economy has slipped into deflation with consumer prices falling 0.3% in July from a month earlier. At first glance, you might think that this is a good thing for consumers. I mean, who wouldn’t want to pay less for things? But oh, my sweet summer child, deflation can be very scary. Read more in our FYFM section below (but maybe not right before bed).

The lowdown

• 📉 China’s economy has slipped into deflation, with consumer prices falling 0.3% in July from a month earlier.

• 😑 Coworking company WeWork informs the market that there is ‘substantial doubt’ about its ability to continue as a going concern.

• 💸 Amazon in talks to become anchor investor in Arm at IPO, potentially joining Alphabet, Intel, and Nvidia.

Flex your finance muscle 💪

Why is deflation bad?

Well, for several reasons, which are summarized below:

• Consumers delay spending: Expecting further price drops, people may wait to buy, reducing overall spending.

• Real interest rates rise: This makes borrowing more expensive and saving more attractive, which can decrease spending and investment.

• Corporate profitability suffers: Lower prices reduce revenue, potentially harming businesses and leading to job cuts.

• Debt becomes more burdensome: The real value of debt increases, causing financial strain for borrowers.

• Central banks face constraints: Traditional monetary policy becomes less effective, limiting tools to combat economic downturns.

• Potential global impact: Reduced demand can lead to a broader slowdown in global economic growth.

TLDR: deflation can lead to a decline in spending, investment and growth, higher unemployment, financial instability, and can have global ramifications.

Featured story

L’Occitane may be taken private before going public again

Skincare group L’Occitane’s controlling shareholder Reinold Geiger is considering a $6.5 billion deal to take the skin-care company private, before possibly relisting in Europe. The company is currently listed in Hong Kong.

Geiger has been discussing a possible offer of HK$35 ($4.48) per L’Occitane share that he doesn't already own. This represents a 37% premium to the last share price and 70% premium to the price before a buyout was mooted.

Asian markets have been underperforming and L’Occitane trades at a significant discount compared to a global cosmetics valuation peer group. It must be some comfort to the LSE to know that it is not the only exchange from which companies are fleeing.

The content we're consuming today

• The Economist podcast: Editor’s Picks: August 7th 2023.

• Bloomberg: The Weight-Loss Drug Frenzy Is Outrunning the Company Behind It ($).

• OMFIF: Fitch downgrade of US is odd but not pointless.

Off-balance sheet items

• Starting today I will no longer be heating up my lunch in Tupperware. I suggest you don’t listen to this FT Weekend podcast on falling global sperm counts if you ever want to enjoy eating something from a plastic container again.

The bottom line