China’s Consumer Prices Creep Out of Deflation in August

(Bloomberg) — China’s deflationary pressures eased slightly in August as consumer prices rose and producer price declines moderated, adding to signs that the worst may be over for some parts of the world’s second-biggest economy.

The consumer price index rose 0.1% last month from a year earlier, the National Bureau of Statistics said Saturday. The increase followed July’s drop of 0.3% — the first decline in more than two years. Core inflation, which strips out volatile food and energy costs, climbed 0.8%.

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Producer prices fell 3%, easing from a decrease of 4.4% in July. Factory-gate deflation has persisted for almost a year.

“The year-on-year increase in CPI was mainly helped by summer travel, which boosted transportation, cultural tourism, accommodation, catering and other sectors,” said Bruce Pang, chief economist at Jones Lang Lasalle Inc. The narrowing drop in PPI was thanks to factors including rising international oil prices and base effects, he said. 

The data came as China searches for evidence that government stimulus is starting to trickle through the economy and staving off the worsening slowdown. The People’s Bank of China delivered a surprise rate cut last month, while local governments have accelerated the issuance of special bonds to fund infrastructure projects.

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Authorities have ramped up easing in recent weeks by cutting back payments in large cities and pushing banks to trim rates on existing mortgages, in a bid to inject life into the ailing property market. They also expanded tax breaks for child and parental care and education to spur consumption. 

Signs some parts of the economy may be bottoming out have emerged in other data released for August. The contraction in manufacturing activity eased while the country’s import decline narrowed. The slump in exports was also not as bad as expected. 

There is still plenty of room for caution. The growth in services activity — a main driver of the post-Covid rebound earlier this year — eased last month, indicating more policy support may be needed to bolster household spending.

“In general the inflation still points to weak demand and requires more policy support in the foreseeable future,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. 

—With assistance from Zhu Lin and Yujing Liu.

(Updates with economists’ voices in fourth and final paragraphs.)

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