### China’s Economy Edges Out of Deflation Amidst Growth Struggles
China’s economy made a marginal emergence from deflation in August, despite Beijing’s ongoing struggles to stimulate growth and restore investor confidence. These difficulties stem from a downturn in the country’s property market and a significant decrease in exports.
The consumer prices index (CPI) rose by 0.1% year-on-year in August, a figure slightly below the 0.2% increase predicted by a Reuters poll of analysts. This shift marks an improvement from the negative 0.3% recorded in July, leading the economy out of the deflationary territory.
However, the producer prices index (PPI) fell by 3% year-on-year, matching analysts’ expectations and signalling continued weakness within the industrial sector. Despite its decline, the drop was less severe than the 4.4% fall in July. On a month-on-month basis, producer prices were slightly higher.
### Economic Measures to Boost Demand
According to China’s National Bureau of Statistics, the CPI rose by an average of 0.5% during the first eight months of 2021, compared to the same period last year. This persistent weakness in the world’s second-largest economy’s inflation comes as Beijing has initiated numerous measures to boost demand, which has been flagging since China came out of Covid lockdowns last year.
The country’s property market, accounting for approximately a quarter of economic activity, remains fragile. Major private-sector developers are grappling with a liquidity crunch, and buyers are hesitant to enter the market.
In response, policymakers have reduced mortgage rates and eased strict loan requirements. However, analysts have described these measures as “piecemeal” and are calling for additional fiscal stimulus to bolster demand.
### CPI Strength and the Role of Non-Food Inflation
Goldman Sachs noted that the stronger CPI number was primarily due to a surge in non-food inflation, which includes rising crude oil prices. The statistics bureau reported that while food prices fell by 1.7% in August, non-food CPI rose by 0.5% after being flat in July.
“For headline CPI, we expect a ‘U-shaped’ recovery,” Goldman analysts said, forecasting that energy prices would bottom out this year and services inflation should increase as the government’s economic interventions took effect.
### Effects of Inflation and Falling Exports
A core issue for Beijing is the simultaneous weakness in the domestic economy and a plunge in the country’s exports. Inflation in the West is suppressing consumption, leading to a drop in China’s exports.
Among the items in the PPI, prices for building materials and non-metals fell by 6%, and ferrous metal materials prices fell by 5.6%. These economic challenges have led to foreign investor outflows from China’s stock markets and a weakening of the renminbi to lows against the dollar not seen since 2007.
Figures released this week show that China’s exports fell by 8.8% in August compared to a year ago. However, this contraction was slightly less severe than analysts expected and represented an improvement on July’s 14.5% decline, the steepest since the start of the coronavirus pandemic.
Original Story at www.ft.com – 2023-09-09 06:41:26
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