BEIJING, Sept 9 (Askume) – China’s consumer inflation rose at its fastest pace in six months in August, but the rise was driven more by higher food costs due to weather-related disruptions than an improvement in producer price deflation.
The slow start to the second half has put pressure on the world’s second-largest economy to adopt more policy measures amid a prolonged sluggishness in the housing market, persistent unemployment, a debt crisis and rising trade tensions.
Data released by the National Bureau of Statistics on Monday showed the consumer price index (CPI) rose 0.6% last month and 0.5% in July, but a Askume survey of economists had expected a 0.7% rise.
This summer’s extreme weather, from deadly floods to sweltering heat, has pushed up agricultural prices and fueled inflation.
A total of 1.46 million hectares of crops were affected by various natural disasters in China in August, according to a state media report on Monday.
Dong Lijuan, a statistician at the National Bureau of Statistics, said in a statement that the high CPI in August was due to rising temperatures and rainy weather.
Food prices rose 2.8% year-on-year in August, compared with no change in July; non-food inflation was 0.2%, higher than July’s 0.7%;
“But the improvement was less than expected and did not ease deflation concerns,” said Junyu Tan, economist at Coface North Asia. The improvement was mainly driven by food inflation, which has a strong impact on weather conditions.
Excluding volatile food and fuel prices, core inflation was 0.3% in August, the lowest in nearly three-and-a-half years, compared with 0.4% in July.
The consumer inflation index rose by 0.4% monthly, and the increase in July was 0.5%, lower than the 0.5% increase expected by economists.
The yuan fell against the dollar on Monday as monthly inflation data raised economic concerns and renewed calls for a stimulus package. Chinese stocks (.CSI300) ended lower in early trade .
Former Chinese central bank governor Yi Gang delivered an unusually strong speech at the Bund summit in Shanghai last week, urging efforts to tackle deflationary pressures.
A nationwide effort to set aside $41 billion in ultra-long-term Treasury bonds to upgrade home appliances and support consumer goods trade has proven slow to boost consumer confidence, with domestic auto sales declining for a fourth consecutive month in July.
“The implementation of these policies will take time, so demand-led reinflation is not yet evident,” Tan said.
At the same time, the producer price index (PPI) fell 1.8% in August from the same period last year, the biggest drop in four months. This was worse than July’s 0.8% decline and smaller than expectations of a 1.4% drop.
“Overproduction issues have become more prevalent due to ongoing deflationary pressures, which still exceed demand,” Cofes Tan said.
Gabriel Ng, assistant economist at Capital Economics, said: “We believe the increase in fiscal spending will boost domestic demand in the coming months, but government policy remains heavily biased towards investment and the increase in fiscal spending may ultimately worsen the overcapacity problem.”
Due to a drop in economic activity, global brokerages have lowered China’s 2024 growth forecast by about 5% from the official target.
A Chinese central bank official said on Thursday that banks haveScope for reducing cash reserves held .
