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China: Consumer prices post greatest decline since February in August
Latest reading: Consumer prices fell 0.4% on an annual basis in August, swinging from July’s flat reading and a sharper fall than markets were expecting. August’s reading represented the largest fall in consumer prices since February. Food prices saw their sharpest decline in nearly four years, driven by broad-based drops and a steep fall in pork costs amid abundant supply, cheaper production, and weak demand. Meanwhile, non-food inflation picked up, boosted by Beijing’s consumer goods subsidies, with gains in housing, clothing, healthcare, and education.
The annual average variation of consumer prices was flat in August (July: +0.1%).
Finally, consumer prices were unchanged over the previous month in August, coming in below the 0.40% increase logged in July.
Panelist insight: On the government’s push to stop overly aggressive price competition, Nomura analysts said:
“We continue to believe the anti-involution campaign alone may not successfully reflate the economy for several reasons. First, the economy will likely face multiple demand shocks in coming months, despite the stock market rally. Second, the cuts in investment and output in some sectors might dent demand, and we do not expect mega stimulus programs on par with the shantytown renovation program, which was implemented during a similar campaign in 2015-18. Third, the ongoing trade-in program has elicited fierce price cuts. Fourth, local governments’ excessive investment in the manufacturing sector may not be truly contained. Fifth, the recent stock market boom may provide new funding to corporations in sectors with overcapacity.”
