China’s Consumer Prices Rise in August, Deflation Pressures Ease

September 9, 2023

Introduction

China’s consumer prices in August returned to positive territory while factory-gate price declines slowed, data showed on Saturday, as deflation pressures ease amid signs of stabilisation in the economy.

Key Highlights

• Consumer price index (CPI) rose 0.1% in August from a year earlier
• Producer price index (PPI) fell 3.0% from a year earlier
• Deflation pressures are easing, indicating a slow and moderate restoring process
• More policy steps are expected to spur demand and support weak consumer confidence

Inflation Profile

“There is a bit improvement in the inflation profile. In the meantime, the PPI deflation appears to be narrowing, pointing to a slow and moderate restoring process,” said Zhou Hao, chief economist at Guotai Junan International.

“In general, the inflation (rate) still points to weak demand and requires more policy support for the foreseeable future.”

Stabilisation in the Economy

China in July became the first of the Group of 20 wealthy nations to report a year-on-year decline in consumer prices since Japan’s last negative headline CPI reading in August 2021. August trade data showed China’s exports and imports both narrowing their declines, joining a run of other indicators showing a possible stabilisation in the economic downturn, as policymakers seek to spur demand and fend off deflation.

Policy Measures

Beijing has announced a series of measures in recent months to shore up growth, including mortgage rate cuts and the easing of borrowing rules last week by the authorities to aid home-buyers. But analysts believe more policy steps are needed to shore up consumer confidence, with a labour market recovery slowing and household income expectations uncertain.

Growth Target

Premier Li Qiang said this week that China is expected to achieve its 2023 growth target of around 5%, but some analysts believe the target could be missed due to a worsening property slump, weak consumer spending, and tumbling credit growth.

About the Author

Joe Cash reports on China’s economic affairs, covering domestic fiscal and monetary policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Before joining Reuters, he worked on UK and EU trade policy across the Asia-Pacific region. Joe studied Chinese at the University of Oxford and is a Mandarin speaker.