China’s consumer price index (CPI) rose by 0.6% year-on-year in August, missing market expectations as transportation, home goods prices, and rents experienced a decline. A Reuters poll had projected the CPI would rise by 0.7% for the month.
Food prices increased by 2.8% year-on-year in August, marking the first positive growth since June 2023, according to Wind Information data. Pork prices surged by 16.1%, while vegetable prices saw a notable increase of 21.8%.
As a key staple in China’s diet, pork carries a significant weight in the CPI. Wang Yifan, an agricultural analyst at Nanhua Futures, indicated that the breeding cycle suggests pork prices could continue rising through September and October but are likely to face downward pressure later in the year.
Core-CPI, which excludes food and energy prices, grew by 0.3% year-on-year in August. This marked a slower pace of growth for the second consecutive month.
On a month-to-month basis, the CPI increased by 0.4% from July, once again missing the 0.5% growth anticipated by Reuters.
China’s consumer prices have remained subdued amid weak domestic demand following the pandemic. Former central bank governor Yi Gang emphasized the importance of addressing “deflationary pressures” during a conference last Friday. He forecasted that the CPI would remain slightly above zero by year-end.
In July, retail sales grew by a modest 2.7% year-on-year. Retail and industrial data for August are expected to be released this Saturday.
Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, noted in a report that fiscal policies need to become more proactive to prevent deflationary expectations from becoming ingrained.
Producer Prices Fall Beyond Expectations
China’s producer price index (PPI) fell by 1.8% year-on-year in August, exceeding the 1.4% decline predicted by a Reuters poll.
Industries such as oil, coal, and other fuel sectors reported a 3% drop in prices compared to the previous year, reversing a 4.3% increase seen in July.
Bruce Pang, Chief Economist and Head of Research for Greater China at JLL, highlighted the ongoing downward pressure on the PPI due to weak domestic demand and challenges in the real estate sector. He also pointed out that most non-food-related categories within the CPI posted month-on-month declines, underscoring the urgent need for stronger measures to stimulate domestic consumption.
