This chart shows China’s implicit GDP deflator on a quarterly basis, against quarterly y-o-y real GDP growth, nominal GDP expansion, and growth of outstanding credit. The GDP deflator is a broad measure of prices in an economy and is determined by measuring the difference between real and nominal economic growth – with the economy-wide change in prices making up the difference. In Q1 2014, China’s real GDP officially expanded by 7.4 percent – the lowest rate since Q1 2009. Typically this dynamic worsens and prolongs an economic downturn. But is China really on the cusp of a deflationary spiral?