China reported Wednesday, according to the National Bureau of Statistics, a decrease of 0.3% in consumer prices and a fall of 4.4% year-on-year in producer prices for July. Data retrieved via Wind Information showed the highest core CPI (Consumer Price Index) increase of 0.8% year-on-year since January. Data from the second quarter caused some economists to express concern over the possibility of deflation, which is an ongoing reduction in prices.
China's inflation data for July showed a modest improvement from the prior month. The consumer price index (CPI) increased by 0.2% on a monthly basis, and year-on-year declined by 0.3%. This was somewhat better than the 0.4% decrease anticipated by a Reuters poll. Notably, this was the first year-on-year decrease registered since early 2021, according to official data from Wind Information. The producer price index (PPI) was down 4.4% from a year ago, a more modest decrease than the 5.4% drop observed in June. Despite this, the year-on-year PPI reading was still below the 4.1% forecast set by a Reuters poll. Commenting on the data, Pinpoint Asset Management President and Chief Economist Zhiwei Zhang noted that both CPI and PPI were still in deflation, and that the economic momentum was eroding due to weakening domestic demand.
Bruce Pang, chief economist and head of research for Greater China at JLL, commented that the CPI deflation may pressure the government to contemplate offering further fiscal stimulus to manage the issue. Pork prices, which are widely consumed in China, dropped 26% year-on-year, which in turn decreased overall CPI in July. Tourism prices, in contrast, grew 13.1% from a year ago. Data from Wind Information display that core CPI, which does not count for food and energy prices, increased 0.8% compared to the same period in 2019 - the highest ever since January. Pang forecasts that producer prices will likely surge on a yearly basis prior to the consumer price index, while consumer prices will be dragged downward due to declining pork prices and a high base effect. On the other hand, core CPI may go up gradually.
Domestic demand has been stagnant since the pandemic. The Chinese Consumer Price Index showed no change in June from the previous year. This data led many economists to express anxiety regarding the probability of deflation - a long-term decrease in prices. Still, the Chinese central bank denied such concerns and anticipated that consumer costs will recover after a slight decline in July.
Oxford Economics predicts that China's consumer price index will rise by 0.5% in 2021 whilst the producer price index will drop by 3.5%, according to Louise Loo, the lead economist at the firm. In a statement Tuesday, Loo cited the relatively modest stimulus measures implemented by China during the pandemic, the on-going tightening of regulations and the property market downturn as the reasons for the country's tentative economic recovery. She went on to say that the authorities' decision to employ targeted easing instead of more encumbering stimulus measures is a "positive development."
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On Tuesday, Chinese trade data revealed a huge decrease in both international and domestic demand. Exports decreased by 14.5% compared to the same period last year, and imports went down by 12.4% in US dollar terms - surpassing the expectations of experts. Partially this drop in imports resulted from commodity prices decreasing, but Loo's estimates suggest a 0.4% decrease in actual imported volume. Set for publishing on August 15th, China will release figures for retail sales, industrial production and other information for July. An amendment has been made to the original article; Oxford Economics anticipates a 3.5% drop in the Producer Price Index in China this year, which was different from the text's first version.
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