China inflation slows, allowing more room for policy easing
Consumer and producer prices have increased at slower-than-expected pace in August as economy weakens amid Covid-19 lockdowns
PRICE increases for consumers and producers in China slowed more than expected in August, paving the way for the country’s central bank to ease policy further to boost its flagging economy.
Consumer inflation in China eased to 2.5 per cent in August from a year ago, data from the National Bureau of Statistics (NBS) on Friday (Sep 9) showed, as the pace of increases in food and energy prices slowed. The rise in consumer price index (CPI) was weaker than the 2.8 per cent median forecast as surveyed by Chinese financial data provider Wind. It was down from the 2-year high of 2.7 per cent in July.
The country’s producer price index (PPI), which reflects what wholesalers are paying factories for their products, moderated to 2.3 per cent in August as commodity prices slipped. The pace was softer than the 3 per cent increase that observers had expected, according to Wind. It was also noticeably slower than the 4.2 per cent rise in July.
“With China PPI easing on the back of lower oil commodity prices, there is evidence of an increasing slowdown across the economy. Together with the slow core inflation numbers, the People’s Bank of China (PBOC) has headroom to ease the policy rate and increase the money supply,” Moody’s Analytics economist Heron Lim wrote in a note.
China – the world’s second-largest economy – continues to rely on sudden and expansive lockdowns in order to stamp out Covid-19, with Chengdu the latest megacity to force most of its 21 million residents to stay home. These curbs forced businesses and factories to shut and restricted the movement of tens of millions of consumers.
As a result, consumer inflation in China has been more subdued when compared to the soaring inflation seen in other major economies. China’s weaker pace of consumer price increase allows the PBOC more leeway to cut rates than its counterparts in Europe and the US.
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The eurozone reported that consumer inflation was at 9.1 per cent in August compared to a year ago, while the US saw an 8.5 per cent increase in July, official data showed. The European Central Bank and Federal Reserve have raised interest rates in response, hoping to curb inflation. The US is expected to release consumer inflation numbers for August next week.
Earlier this year, Beijing set its consumer inflation target at around 3 per cent for 2022. But after a string of indicators showed that the world’s second-largest economy was slowing down, the PBOC surprised observers with a cut in interest rates last month.
China’s economy only grew by 0.4 per cent in the second quarter this year compared to a year ago. Manufacturing activity contracted in August. Even though retail sales and industrial production still grew in July, they slowed from June’s numbers and undershot analysts’ expectations. Credit growth also weakened in July, indicating that businesses and consumers were reluctant to borrow from banks.
“With the domestic recovery continuing to face pressure, the low inflationary pressure gives the PBOC room to stay accommodative,” HSBC economist Erin Xin said in a note.
Food prices, which were a significant driver for higher consumer inflation, eased to 6.1 per cent in August from a year ago, compared to 6.3 per cent in July, Friday’s numbers showed.
Pork prices were the largest contributor to higher inflation. It surged to 22.4 per cent last month from a year earlier, compared to 20.2 per cent in July. Hog prices jumped in August “mainly due to the lower base in the same time last year,” senior NBS statistician Dong Lijuan wrote in a note.
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