Deflationary pressures in China ease as consumer prices rise

Deflationary pressures in China ease as consumer prices rise

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China’s economy emerged from recession in August, as Beijing struggled to boost growth and revive investor confidence in the wake of a slump in the country’s real estate market and slumping exports.

The consumer price index rose 0.1% year-on-year in August, less than a Reuters poll of analysts that had expected a 0.2% increase, but exiting the negative territory of 0.3% recorded in July.

Meanwhile, the producer price index fell 3% year-on-year, in line with analysts’ expectations and underscoring continued weakness in the manufacturing sector. But the decline was less severe than the 4.4 percent decline in July. Producer prices also rose by 1% on a monthly basis.

China’s National Bureau of Statistics said on Saturday that the consumer price index rose an average of 0.5 percent in the first eight months of the year compared to the same period in 2022.

The persistent weakness in inflation in the world’s second-largest economy comes as Beijing unleashed a wave of measures to try to boost demand, which has faltered since China emerged from coronavirus lockdowns last year.

The country’s real estate market, which accounts for about a quarter of economic activity, remains in a critically supportive state as major private developers suffer from a liquidity crunch and buyers are reluctant to venture into the market.

Policymakers cut mortgage rates and eased stringent requirements for loans, but analysts described the measures as “piecemeal” and called for more fiscal stimulus to boost demand.

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Goldman Sachs said the stronger CPI figure was largely due to strong non-food inflation, including higher crude oil prices.

China’s statistics bureau said that while food prices fell 1.7 percent in August, the non-food consumer price index rose 0.5 percent after being flat in July.

β€œOn the headline CPI, we expect a U-shaped recovery,” said analysts at Goldman Sachs, who expect energy prices to bottom this year and service inflation to pick up as the government’s economic interventions take effect.

The central problem facing Beijing is that weakness in the domestic economy has coincided with a decline in the country’s exports, as inflation in the West dampens consumption.

The Chinese Bureau of Statistics said consumer goods prices fell 0.7 percent, and service prices rose 1.3 percent.

Among the items included in the producer price index, the prices of building materials and non-metallic materials decreased by 6 percent while those of ferrous metal materials decreased by 5.6 percent.

China’s disappointing growth and declining exports spurred outflows of foreign investors from Chinese stock markets, and contributed to a weakening of the renminbi (renminbi) to levels not seen against the dollar since 2007.

China’s exports fell 8.8 percent in August from a year ago, according to figures released this week, but the contraction was marginally less severe than analysts expected.

This also marks an improvement from the 14.5 percent drop in July, the worst since the start of the coronavirus pandemic.

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