China’s Consumer Prices Rise Slightly, PPI Decline Slows, but More Policy Support Needed for Demand
Chinese consumer prices saw a slight increase in August, marking a return to positive territory and a sign of easing deflationary pressures. The consumer price index (CPI) rose by 0.1% compared to the previous year. However, this increase was slower than expected, with the median estimate being a 0.2% rise. This comes after July saw a 0.3% decline in the CPI. Core inflation, which excludes food and fuel prices, remained unchanged at 0.8% in August.
On the other hand, the producer price index (PPI) decreased by 3.0% year-on-year. While this decline was in line with expectations, it was a more moderate decrease compared to the 4.4% drop recorded in July. This suggests that deflationary pressures in the producer price index are beginning to ease.
Analysts believe that more policy support is necessary to strengthen consumer demand in the world's second-largest economy. The labor market's recovery is slowing, and there is uncertainty about household income expectations.
Food prices fell by 1.7% year-on-year, while non-food costs increased by 0.5%, primarily due to rising costs associated with tourism. Recent floods have damaged crops in China's key grain-producing areas, which has raised concerns about domestic food inflation.
The slight improvement in inflation indicators does not change the overall picture of weak demand, indicating the need for additional policy support. The situation is expected to show modest improvements in the fourth quarter.
It's important to note that China's price changes are quite different from most other major economies, which have seen surging inflation following the COVID-19 pandemic. This has prompted their central banks to raise interest rates.
As China looks for ways to stimulate demand and combat deflation, it has introduced measures like mortgage rate cuts and eased borrowing rules to help homebuyers. Policymakers remain focused on stabilizing the economy, with potential measures such as further interest rate cuts and changes in bank reserve requirement ratios to come.
Premier Li Qiang has stated that China is expected to achieve its 2023 growth target of around 5%. However, some analysts believe that this target may be challenging to meet due to a property market decline, weak consumer spending, and reduced credit growth.
