China’s deflation pressures ease as consumer prices rise

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China’s economy emerged from deflation in August, as Beijing struggled to boost growth and restore investor confidence after a slump in the country’s property market and a sharp drop in exports.

The consumer price index rose 0.1% year-on-year in August, below the 0.2% increase forecast by economists polled by Reuters, but has shrugged off a negative reading of -0.3% in July.

Meanwhile, the producer price index fell 3% year-on-year, in line with analysts’ expectations and highlighting continued weakness in the industrial sector. But the decline was not as severe as July’s 4.4% drop. Producer prices also rose a fraction month-on-month.

Compared with the same period in 2022, the consumer price index rose an average of 0.5 percent in the first eight months of this year, China’s National Bureau of Statistics said on Saturday.

The persistently weak inflation in the world’s second-largest economy comes as Beijing has rolled out a series of measures to try to boost demand, which has slumped since the country lifted its coronavirus lockdown last year.

The country’s real estate market, which accounts for about a quarter of economic activity, remains on life support as big private developers face a liquidity crunch and buyers are reluctant to venture into the market.

Policymakers lowered mortgage rates and eased strict lending requirements, but analysts called the measures “piecemeal” and called for more fiscal stimulus to boost demand.

A central problem for Beijing is that a weakening domestic economy has coincided with a sharp drop in exports as inflation in the West has dampened consumption.

China’s National Bureau of Statistics said food prices fell 1.7% year-on-year in August, while non-food prices rose 0.5%. The price of consumer goods fell by 0.7%, and the price of services rose by 1.3%.

Among the ex-factory prices for industrial producers, the prices of building materials and non-metallic materials fell by 6%, and the prices of ferrous metal materials fell by 5.6%.

China’s disappointing growth and falling exports have sparked an outflow of foreign investors from its stock market and sent the yuan falling to its weakest level against the dollar since 2007.

Data this week showed China’s exports fell 8.8% in August from a year earlier, but the contraction was slightly weaker than analysts had expected.

It was also an improvement from July’s 14.5% decline, the worst since the coronavirus pandemic began.

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