China consumer inflation unchanged amid anti-price war campaign
A broad measure of prices across the economy, known as the GDP deflator, has declined for nine straight quarters, its longest streak in decades
[BEIJING] China’s consumer prices held steady in July as deflationary pressures eased on the back of a government pledge to contain excessive competition.
The consumer price index (CPI) was unchanged from a year earlier, the National Bureau of Statistics said on Saturday (Aug 9). The median estimate of economists surveyed by Bloomberg was for a 0.1 per cent decline. Inflation ended a four-month falling streak in June, turning positive.
Core inflation, which excludes volatile food and fuel prices, was 0.8 per cent in July from a year earlier, the highest in 17 months. Food prices fell 1.6 per cent, following a 0.3 per cent decline in June.
Extreme weather added to the economic strain, with sweltering heat gripping much of China’s eastern seaboard last month and heavier-than-usual downpours lashing the country with the East Asian monsoon stalling over its north and south.
On a monthly basis, the CPI edged up 0.4 per cent, against a 0.1 per cent drop in June and exceeding forecasts for a 0.3 per cent rise.
Factory deflation persisted into a 34th month, with the producer price index falling 3.6 per cent, matching June’s decline.
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Price wars are intensifying deflationary pressures in China, where consumer demand remains fragile. The government has launched campaign to curb the cutthroat competition among businesses that’s eroded profits and driven down wages the world’s second-biggest economy.
“Nonetheless it is still unclear if this is the end of deflation in China,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The property sector has not stabilised. The economy is still supported more by external demand than domestic consumption. The labour market remains weak,” he said.
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China’s top leadership vowed at its monthly gathering in late July to ramp up management of overcapacity in key industries but faces a challenge in reflating the economy, and more aggressive efforts to boost domestic demand may be necessary.
The state’s campaign also seems to have had little effect on people’s perceptions, with the price expectation index, based on a central bank survey of households, in decline since late last year.
A broad measure of prices across the economy, known as the GDP deflator, has declined for nine straight quarters, its longest streak in decades.
Resilient demand for Chinese goods overseas has helped the economy hold up surprisingly well in the face of US tariffs, but industrial profits are deteriorating as companies struggle to pass on rising costs to consumers, given weak spending power and poor sentiment.
Fierce rivalry at home, fuelled by excess industrial capacity, has driven exporters to slash prices to boost sales, drawing sharp criticism from abroad and deepening trade frictions.
The Communist Party’s decision-making Politburo, led by President Xi Jinping, listed the goal of addressing “disorderly competition” among companies as one of its top priorities when it set the economic policy agenda for the rest of the year at its meeting last month.
“The big picture would remain the same – there is still a long way to go before the economy escapes deflationary pressures,” said Eric Zhu, economist for Bloomberg Economics.
“Policymakers are recognising that “fixing disorderly competition” is key to addressing the roots of deflation – and more steps may follow.”
Xi issued a call in July to “break involution,” using a term for a destructive state of intense competition sparked by excess capacity that forces people to overwork despite diminishing returns. The president has also questioned the need for local governments to crowd into the same emerging industries, such artificial intelligence and vehicles powered by alternative-energy sources.
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