Deflation risk in China: PPI and CPI continue to fall

The current decline in producer prices and stagnation in consumer prices in China have raised concerns about the risk of deflation.

China’s National Bureau of Statistics (UIB) announced August 2023 data on price increases in the country.

In August, the producer price index (PPI) decreased 3 percent compared to the same period last year, while the consumer price index (CPI) increased 0.1 percent.

While producer prices continued their ten-month downward trend in August, the slight rise in consumer prices below expectations points to the risk of deflation in the medium and long term.

FOREIGN DEMAND HAS WEAKENED

The decline recorded in the PPI, calculated from the ex-factory prices of manufacturing products, in the last quarter of 2022 continued in the first 8 months of this year.

In August, although the PPI increased by 0.2 percent compared to the previous month, it decreased by 3 percent year-on-year.

Producer prices decreased by 3.2 percent in the first 8 months compared to the same period last year.

Analysts attribute the drop in producer prices to weak foreign demand. In China, whose manufacturing sector relies on exports, exports fell 8.8 percent year-on-year in August.

CONSUMER PRICES STILL ARE

Although the CPI, which is considered the main indicator of inflation, rose 0.1 percent annually in August, it recovered after last month’s decline.

Consumer prices, which remained stagnant, rose just 0.5 percent in the first eight months compared with the same period last year.

In August, food prices decreased by 1.7 percent and consumer goods prices decreased by 0.7 percent, while service prices increased by 1.3 percent.

It is observed that price increases in the country remain behind the 3 percent inflation goal that the government has planned for this year. (AA)