China’s deflation pressures ease, more steps expected to spur demand

Beijing, Sept. 9 (BNA): China’s consumer prices returned to positive territory in August while factory-gate price declines slowed, data showed on Saturday, as deflation pressures ease amid signs of stabilization in the economy.


But analysts say more policy support is needed to shore up consumer demand in the world’s second-biggest economy, with a labor market recovery slowing and household income expectations uncertain.


The consumer price index (CPI) rose 0.1% in August from a year earlier, the National Bureau of Statistics said, slower than the median estimate for a 0.2% increase in a Reuters poll. CPI fell 0.3% in July.


According to Reuters, core inflation, which excludes food and fuel prices, was unchanged at 0.8% in August.


The producer price index (PPI) fell 3.0% from a year earlier, in line with expectations, after a drop of 4.4% in July. The drop in factory prices was the smallest in five months.


Food prices fell 1.7% on the year while non-food costs rose 0.5% – led by rising costs linked to tourism, the bureau said.


Recent floods have damaged corn and rice crops in China’s key northern grain-producing belt, sparking domestic food inflation fears as consumers worldwide face tightening food supplies caused by the conflict in Ukraine.


“Both CPI and PPI are likely to show modest improvements in the fourth quarter,” said Luo Yunfeng, an economist at Huajin Securities.


Compared with the previous month, CPI rose 0.3%, picking up from 0.2% in July, the statistics bureau said.

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Pork prices rose 11.4% month-on-month, versus no change in July, due to the impact of extreme weather in some areas. They were down 17.9% from a year earlier, narrowing from a 26% drop on July.


Factory-gate deflation moderated in August due to improving demand for some industrial products and rising international crude oil prices, the statistics bureau said.


China’s anemic price changes contrast sharply with the surging inflation most other major economies have seen since the COVID-19 pandemic waned, forcing their central banks to rapidly raise interest rates.


China in July became the first of the Group of 20 wealthy nations to report a year-on-year decline in consumer prices since Japan’s last negative headline CPI reading in August 2021.


August trade data showed China’s exports and imports both narrowing their declines, joining a run of other indicators showing a possible stabilization in the economic downturn, as policymakers seek to spur demand and fend off deflation.


“With early signs of growth stabilization, we see deflationary pressures easing, a trend reflected in higher commodity prices in August,” ANZ analysts said in a note.


Beijing has announced a series of measures in recent months to shore up growth, including mortgage rate cuts and the easing of borrowing rules last week by the authorities to aid home-buyers.


China’s central bank could continue to cut interest rates and bank reserve requirement ratios, said Bruce Pang, chief economist at Jones Lang Lasalle.

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Premier Li Qiang said this week that China is expected to achieve its 2023 growth target of around 5%, but some analysts believe the target could be missed due to a worsening property slump, weak consumer spending, and tumbling credit growth.



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