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China's deflation pressures ease as consumer prices rise

August CPI edges into positive territory, but producer index continues to fall

China’s economy edged out of deflation in August, as Beijing struggles to promote growth and revive investor confidence following a slide in the country’s property market and a plunge in exports.

The consumer prices index was 0.1 per cent higher year on year in August, below a Reuters poll of analysts for a 0.2 per cent increase, but emerging from the negative territory of minus 0.3 per cent recorded in July.

The producer prices index, meanwhile, fell by 3 per cent year on year, in line with analyst expectations and underlining continuing weakness in the industrial sector. But the fall was less severe than July’s 4.4 per cent fall. Producer prices were also a fraction of a per cent higher month on month.

China’s National Bureau of Statistics said on Saturday the consumer prices index had on average increased 0.5 per cent in the first eight months of the year compared with the same period in 2022.

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

The country’s property market, which accounts for about a quarter of economic activity, remains on life support with large private sector developers suffering a liquidity crunch and buyers reluctant to venture into the market.

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

Dr. Michele Pellegrino, [09/09/2023 20:07] Goldman Sachs said the stronger CPI number was largely thanks to stronger non-food inflation, including rising crude oil prices.

China’s statistics bureau said while food prices dropped by 1.7 per cent in August, non-food CPI increased by 0.5 per cent after being flat in July.

“For headline CPI, we expect a ‘U-shaped’ recovery,” the analysts at Goldman said, predicting that energy prices would bottom out this year and services inflation should pick up as the government’s economic interventions took effect.

Souece FT

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