China’s consumer prices fell below zero for the first time in three months, while factory deflation showed tentative signs of easing, as the government intensifies efforts to rein in excessive competition and overcapacity, Bloomberg reports.
According to the National Bureau of Statistics (NBS), the consumer price index (CPI) declined 0.4% in August compared with a year earlier. The median forecast of economists surveyed by Bloomberg had expected a 0.2% drop. This follows a zero inflation reading in July.
Meanwhile, the producer price index (PPI) decreased 2.9%, marking the 35th consecutive month of negative factory prices. However, the decline narrowed from July’s 3.6% fall, and month-on-month output prices rose across several industries for the first time in months, hinting at easing deflationary pressures.
Market reaction to the data was subdued. China’s 30-year government bond yield remained virtually unchanged at 2.17%, while the yuan held steady against the dollar.
Deflationary Pressures and Economic Slowdown
China is now in its third consecutive year of deflation — a phenomenon not seen since it began transitioning away from central planning in the late 1970s. The persistent slide in prices over nine straight quarters underscores a supply-demand imbalance that has strained corporate balance sheets and weakened household and government finances.
The drop in food prices and last year’s high base effect were the primary contributors to the CPI decline, according to Dong Lijuan, chief statistician at the NBS. Food costs fell 4.3% year-on-year, while prices for consumer goods dropped 1%.
Yet core CPI, which excludes volatile items such as food and energy, rose to an 18-month high of 0.9%. Dong noted that this increase signals that government policies aimed at boosting demand and consumption are beginning to take hold.
Outlook Remains Uncertain
Whether consumer and producer prices will continue to rebound remains a key question with far-reaching implications for financial markets, including equities and bonds. Weak domestic demand poses a significant challenge to efforts to reverse deflation, and although some output cuts have been reported in commodities such as coal, steel, and copper, experts warn it is too early to determine if these measures will spur a sustained price recovery.
Adding to the uncertainty, a Chinese lithium mine that had previously pushed battery-metal prices higher by halting production last month is now reportedly preparing to resume operations earlier than expected, a source with direct knowledge of the situation told Bloomberg.
Bloomberg Economics has also reported that China’s economy is slowing across multiple sectors, with retail sales of cars and home appliances among the hardest hit due to poor demand. Export growth further weakened, registering its slowest pace in six months in August, as shipments to the United States fell once again.
