China’s CPI Misses Forecasts with 0.6% Rise in August as Domestic Demand Remains Weak

Domestic Demand

China’s consumer price index (CPI) rose by a modest 0.6% year-on-year in August, below market expectations as transportation, home goods, and rent prices continued to decline. Economists surveyed by Reuters had anticipated a 0.7% increase in the CPI, indicating that inflationary pressures remain subdued in the world’s second-largest economy. 

Food prices saw a notable increase of 2.8% in August, marking the first positive reading since June 2023. Pork prices, which hold significant weight in China’s CPI due to its status as a dietary staple, surged by 16.1% year-on-year. Meanwhile, vegetable prices climbed sharply by 21.8%. Analysts predict pork prices may continue to rise through September and October due to breeding cycles but could face downward pressure later in the year. 

Core CPI, which excludes volatile food and energy prices, rose by just 0.3% year-on-year, reflecting a slower increase for the second consecutive month. On a month-to-month basis, the CPI edged up by 0.4% in August, missing the Reuters estimate of 0.5%. 

China has experienced muted consumer price growth since the pandemic, as domestic demand has struggled to recover. Former central bank governor Yi Gang emphasized the need to address deflationary risks, forecasting the CPI to remain slightly above zero by year-end. Retail sales have been sluggish, rising only 2.7% year-on-year in July, with further retail and industrial data for August expected later this week. 

The producer price index (PPI) added further signs of weak inflationary pressure, falling by 1.8% year-on-year in August—exceeding the forecasted 1.4% decline. Industries such as oil, coal, and fuel reported a 3% drop in prices, reversing a 4.3% rise seen in July. 

Experts remain concerned about the ongoing deflationary trends in China. Bruce Pang, chief economist for Greater China at JLL, noted that categories outside of food, tobacco, and alcohol posted price declines in August, underlining the need for stronger fiscal measures to boost domestic demand. Without targeted action, the downward pressure on both consumer and producer prices could persist. 

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