China’s consumer prices rise 0.6% in August

Beijing. China’s consumer inflation accelerated in August at the fastest pace in half a year, but the jump was driven more by higher food prices due to weather-related disruptions than a recovery in domestic demand as producer price deflation worsened.

The poor start to the second half is putting pressure on the world’s second-largest economy to tighten its policies amid a prolonged housing recession, persistent unemployment, debt problems and rising trade tensions.

The consumer price index (CPI) rose 0.6 percent last month from a year earlier, up from 0.5 percent in July, data from the National Bureau of Statistics showed on Monday, but less than the 0.7 percent rise expected in a Reuters poll of economists.

Climate makes food more expensive

This summer’s extreme weather conditions, from deadly floods to scorching heat, have pushed up prices for agricultural products, contributing to accelerating inflation.

Chinese crops affected by various natural disasters totaled 1.46 million hectares in August, state media reported Monday.

The increase in the CPI in August was due to high temperatures and rainy weather,” Dong Lijuan, head of the National Bureau of Statistics, said in a statement.

Food prices rose 2.8 percent year-on-year in August, compared with an unchanged result in July, while non-food inflation was 0.2 percent, compared with 0.7 percent in July.

“But the rebound has been smaller than expected and has done little to ease deflation concerns. Much of the improvement has been food reflation, which is susceptible to fluctuations in weather conditions and capacity changes,” said Junyu Tan, North Asia economist at Coface.

Core inflation on the decline

Core inflation, which excludes volatile food and fuel prices, was 0.3 percent in August, the lowest in nearly three and a half years, down from 0.4 percent in July.

The consumer inflation gauge rose 0.4 percent month-on-month, compared with 0.5 percent in July, below economists’ expectations for a 0.5 percent increase.

Fall in production

Meanwhile, the producer price index (PPI) for August fell 1.8 percent from a year earlier, the biggest drop in four months. This was worse than the 0.8 percent decline in July.

“We believe that increased fiscal spending will boost a rebound in domestic demand in the coming months. But government economic policy remains too biased towards investment, so increased fiscal spending could ultimately exacerbate the problem of excess capacity,” said Gabriel Ng, deputy economist at Capital Economics.

Doubts about annual growth

Weakening economic activity has prompted global rating agencies to cut their 2024 growth forecasts for China below the official target of around 5 percent.

China has room to reduce the amount of cash banks must set aside in reserves, a central bank official said on Thursday.