BEIJING (Reuters) – China’s consumer inflation hit its fastest pace in half a year in August, but the rise was driven by weather-related food costs rather than a recovery in domestic demand as producer price deflation worsened.
A lackluster start to the second half is increasing pressure on the world’s second-largest economy to implement more policies amid a lingering housing crisis, persistent unemployment, debt problems and rising trade tensions.
The National Bureau of Statistics (NBS) reported on Monday that the consumer price index (CPI) rose 0.6% from the beginning of last month, up 0.5% in July, but less than a Reuters forecast of a 0.7% increase. survey of economists.
Extreme weather this summer, from deadly floods to scorching heat, has driven up farm prices and fueled inflation.
On Monday, the state media reported that in August, 1.46 million hectares of cultivated land were damaged by various natural disasters in China.
“The high CPI in August was due to high temperatures and rainy weather,” NBS statistician Dong Lijuan said.
Food prices rose 2.8% in August from unchanged in July, while non-food inflation eased to 0.2% from 0.7% in July.
“However, the rebound has been softer than expected and has done little to ease concerns about deflation. Much of the improvement has been food relations, which are sensitive to changing weather conditions and potential changes,” said Cunyu Tan, North Asia economist at Coface.
Core inflation, excluding volatile food and fuel prices, was 0.3% in August, the lowest in nearly three and a half years, down from 0.4% in July.
A measure of consumer inflation rose 0.4% month-on-month, compared with a 0.5% increase in July and economists’ expectations for a 0.5% increase.
Long-term yields fell against the dollar on Monday as monthly inflation data added to economic worries and fresh calls for easing. Chinese stocks were down in morning trade.
In unusually strong comments, China’s former central bank chief Yi Gang called for efforts to combat deflationary pressures at the Bund Summit in Shanghai last week.
A national campaign to release $41 billion in ultra-long Treasury bonds to support equipment upgrades and trade in consumer goods proved hot in boosting consumer confidence, and domestic auto sales fell for a fourth straight month in July.
“These policies will take time to filter through, so a demand-driven reflation is not yet on the horizon,” Tan said.
Meanwhile, the producer price index (PPI) fell 1.8% from a year earlier in August, the biggest drop in four months. That was worse than the 0.8% decline in July and below the forecast 1.4% decline.
“Ongoing deflationary pressures translate into a broader problem of an output surplus that still outstrips demand,” Coface’s Tan said.
Gabriel Ng, assistant economist at Capital Economics, said: “We think that the increase in fiscal spending will lead to an increase in domestic demand in the coming months. But government policy is still very skewed towards investment, so increased fiscal spending could ultimately exacerbate the problem of overcapacity.” . .
Weakening economic activity has prompted global brokerages to cut their growth forecasts for China 2024 below the official target of around 5%.
China has room to reduce the amount of cash banks must set aside as reserves, a central bank official said Thursday.
