Despite China’s latest industrial restructuring efforts aimed at tackling over-production in key industries and price competition, the latest data by the National Bureau of Statistics (NBS) released on Saturday showed a steep fall in the producer price index (PPI).
While factory-gate prices have been declining for two years now, the PPI in July fell 3.6 per cent, surpassing economists’ forecast of a 3.3 per cent decline.
However, it’s month-on-month fall was 0.2 per cent, an improvement from June’s 0.4 per cent drop.
While consumer prices in the country have remained stable, the uncertainty of trade tariffs on investor sentiment and consumers is palpable.
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Dong Lijuan, NBS chief statistician, said in a statement, that extreme weather and global trade uncertainties contributed to price declines in some industries.
Deflationary pressures have been weighing heavily on Chinese authorities for some time now, triggering them to undertake numerous policy measures including “anti-involution”, which is aimed at curbing disorderly competition in sectors like autos.
While the government has not yet resorted to sweeping reforms akin to those launched a decade ago, strategists believe there will be signs of improvement in a few months.
Xing Zhaopeng, senior China strategist at ANZ, pointed to improvements in month-on-month PPI and year-on-year core CPI to back this belief.
However, caution remains a strong sentiment amongst analysts, with many noting the need for stimulus in demand to reform people’s welfare even as trade talks with the US remain fragile.
Meanwhile, China's consumer price index (CPI) was flat year-on-year in July, compared with a 0.1 per cent rise in June, the data showed.
On a monthly basis, the CPI edged up 0.4 per cent, against a 0.1 per cent drop in June and exceeding forecasts for a 0.3 per cent rise.
Core inflation, which excludes volatile food and fuel prices, was 0.8 per cent in July from a year earlier, the highest in 17 months. Food prices fell 1.6 per cent, following a 0.3 per cent decline in June.
The year has been especially trying for the country in terms of extreme weather patterns, with sweltering heat gripping China’s eastern seaboard last month. On the other hand, unusually heavy downpours had hit the country’s north and south, stalling life for days.
With the property sector not stabilising, the economy continues to be supported by external demand than domestic consumption, a trend that economists find worrisome, making it unclear when deflation may end in China.
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