China’s consumer prices climb at a slower-than-expected pace
China’s consumer prices rose at a slower-thanexpected pace in August while the rate of producer inflation hit an 18-month low, reflecting an economy plagued by weak domestic demand and leaving room for further central bank policy easing.
The consumer price index (CPI) increased 2.5% from the same month a year earlier, National Bureau of Statistics (NBS) data showed on Friday, slower than 2.7% in July and the 2.8% average forecast in a Reuters poll of analysts.
The producer price index (PPI) rose 2.3%, the slowest pace since February 2021, and slower than 4.2% a month prior and 3.1% in the poll, due to falling energy and raw materials prices.
“Factory gate inflation is set to fall further throughout the rest of the year thanks to a continued drop back in commodity prices and a higher base for comparison,” Capital Economics analysts Sheana Yue and Zichun Huang said in a research note.
“We think CPI inflation will remain below the PBOC’S 3% ceiling,” they said, referring to the People’s Bank of China (PBOC).
Official and private data indicates further lost momentum in August in the world’s secondbiggest economy, where property market weakness, COVID-19 containment measures and power shortages have dented consumption and factory activity. There were 1,404 new COVID-19 infections in China on Sept. 8, 301 of which were symptomatic, the National Health Commission said, while Chengdu has extended a lockdown for the majority of its over 21 million citizens.
Slower growth in consumer prices came as food prices rose 6.1% on year in August, versus 6.3% in July, with non-food items at 1.7% from July’s 1.9% rise.
Core CPI, which excludes volatile food and energy prices, rose 0.8%, matching the previous month.
On a month-on-month basis, the CPI fell 0.1% from July, ater rising 0.5% in July from June, and compared with 0.2% forecast in the Reuters poll.
Overall industrial products prices maintained a downward trend due to falling prices in global crude oil and non-ferrous metals, NBS said separately.
Producer price inflation in oil and natural gas extraction slowed to 35.0% on year in August from 43.9%.
On month, the PPI fell 1.2% in August from July, when it declined 1.3% from June.
While consumer inflation was approaching the government’s target of around 3.0%, it was still lower than seen in other major economies.
The PBOC in August said China faces rising structural inflation pressure and consumer inflation might exceed 3% in some months in the second half of the year.
Analysts said slowing inflation could give some room for further monetary policy easing.
“As such, the PBOC will not be constrained to ease policy further to support economy,” said Yue and Huang. “The PBOC had lowered most policy rates in August, and we continue to anticipate more policy rate cuts during the rest of the year.” China’s cabinet announced more steps on Thursday to spur investment, state media reported, extending a rat of measures to bolster an economy ravaged by COVID-19.
“We expect further easing will come in the form of quantity-based tools to provide liquidity support as well as structural tools like additional re-lending quotas for focus areas like manufacturing and green investment,” said HSBC economist Erin Xin.
Meanwhile, oil demand in China, the world’s biggest energy consumer, could contract for the first time in two decades this year as Beijing’s ZERO-COVID policy keeps people at home during upcoming holidays and reduces fuel consumption.
Hundreds of millions of Chinese who typically hit the roads and domestic flights during the Mid-autumn Festival - falling on Sept. 10 this year - and early October’s Golden Week holidays are expected to stay home to avoid being ensnared by sudden lockdowns to curb the spread of COVID-19.
Lockdowns in key cities such as financial hub Shanghai already hurt China’s oil demand in the second quarter while recovery for the rest of the year is expected to be slow as China sticks to its ZERO-COVID policy. This could cap intake of the world’s top crude oil importer and dent global oil prices.
China’s demand for gasoline, diesel and jet fuel could fall by 380,000 barrels per day (bpd) to 8.09 million bpd in 2022, which would be the first contraction since 2002, said Sun Jianan, an analyst from Energy Aspects, calling it a “watershed moment”.
In comparison, demand rose 450,000 bpd, or 5.6%, in 2021.
So far this year, China has seen its Januaryaugust crude oil imports decline by 4.7%, the first contraction for the eight-month period since at least 2004.
“We believe imports will only rise substantially in early Q1 23 when China begins to source crude for the Lunar New Year, rather than our previous expectation of Q4 22,” Sun said.
Factory gate inflation is set to fall further throughout the rest of the year, thanks to a continued drop back in commodity prices and a higher base for comparison