China's deflation pressures ease, more steps expected to spur demand
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[September 09, 2023] By
Kevin Yao and Joe Cash
BEIJING (Reuters) - 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.
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.
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"There is a bit of improvement in the inflation profile. In the
meantime, the PPI deflation appears to be narrowing, pointing to a slow
and moderate restoring process," said Zhou Hao, chief economist at
Guotai Junan International.
"In general the inflation (rate) still points to weak demand and
requires more policy support for the foreseeable future."
Food prices fell 1.7% on 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 war in
Ukraine.
"Both CPI and PPI are likely to show modest improvements in the fourth
quarter," said Luo Yunfeng, an economist at Huajin Securities.
DEFLATION PRESSURES
Compared with the previous month, CPI rose 0.3%, picking up from 0.2% in
July, the statistics bureau said.
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.
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People walk at a shopping area in Beijing, China September 5, 2023.
REUTERS/Tingshu Wang/File Photo
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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.
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.
(Reporting by Kevin Yao and Joe Cash; Editing by Sam Holmes and
William Mallard)
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