Deflation is a taboo topic in China. You’re not supposed to talk about it. Especially not with foreigners.

In fact, according to a somewhat unnerving account published this week by Bloomberg, you’re not supposed to talk about much of anything anymore, unless it’s “Xi Jinping Thought.” Apparently, some state employees are now compelled to complete course work in the art of “secret keeping.”

China’s inward turn at a critical juncture for geopolitics and the domestic economy seems tragically ironic when juxtaposed with Xi’s incessant allusions to “opening up” and uniting the global community around a multilateral vision for the world. What can you say? That’s dictators for you.

For now, Xi’s still allowing the statistics bureau to publish economic data, but if deflation is a taboo topic, then figures suggesting the economy is succumbing could be considered state secrets sooner or later. I’d say I’m just joking, but I’m really not. Recep Tayyip Erdogan was widely suspected of intervening in the process of tabulating and reporting Turkey’s economic data last year, and Xi is twice the authoritarian, at least.

Erdogan’s problem was triple-digit inflation. Xi has the opposite problem — deflation, both at the factory gate and, as of July, at the consumer level too. As expected, Wednesday’s data showed CPI turned negative last month for the first time since early 2021.

Producer prices fell 4.4%, running the streak to 10 months.

This isn’t a healthy development. It spoke to China’s worsening demand problem, and it could easily become self-fulfilling if it hasn’t already.

Domestic consumption is in part a function of psychology. Xi and his “Thought” (proper noun) undercut sentiment severely last year with what some decried as an anachronistic COVID containment policy. The “revenge spending” phenomenon didn’t manifest in China once the virus curbs were finally lifted. Initially (i.e., in late December and January), people were too busy dying and standing in line to cremate dead loved ones to spend. But even as the re-opening wave subsided, consumption didn’t really pick up, or at least not to the extent many economists expected.

The legacy of Xi’s property crackdown and regulatory blitz is an albatross, both for citizens and foreign capital. Long story short, Xi’s scorched earth strategy for dealing with the virus and societal excess created an environment of fear, paranoia and fatalism, to the detriment of economic dynamism.

Deflation is very bad news for an economy that some argue is teetering on the brink of a balance sheet recession. The country needs fiscal stimulus. Posthaste. Monetary policy can help, but it’s no panacea.

Wednesday’s price data came on the heels of trade figures for July which showed both exports and imports plunged last month. I gently suggested readers be wary of excuses from analysts and purported policy mavens peddling caveats. The CPI and PPI figures underscore the point.

An official from the statistics bureau said Wednesday that CPI deflation is likely to prove transitory. Consumer price growth will “rebound gradually,” he insisted. Last month, during remarks accompanying the release of Q2 GDP figures and key activity data, another official said that, “Generally speaking, there is no deflation in Chinese society and there won’t be in the future.”