China’s consumer price index (CPI) in June increased by 0.2% year-on-year, a decrease of 0.1 percentage points from the annual increase rate in May, which was lower than the average forecast. At the same time, the producer price index (PPI) dropped by 0.8% year-on-year, marking the 21st consecutive month of negative growth, indicating that the risk of currency tightening in China has not subsided.
According to data released by the Chinese Communist Party’s National Bureau of Statistics on Wednesday, July 10, China’s CPI rose by 0.2% year-on-year in June, the lowest in three months, and below the 0.4% increase predicted by various institutions.
This signifies that despite various supportive measures taken by the CCP authorities, factors such as a long-standing sluggish real estate market and unstable employment have weakened consumer activities, leading to weak domestic demand and dragging the Chinese economy into a slow recovery quagmire.
Zhiwei Zhang, Chief Economist of Pinpoint Asset Management, stated, “The deflation risk in China has not receded. Domestic demand remains weak.”
Reuters pointed out that, despite supply disruptions due to adverse summer weather, the decline in food prices has further intensified, underscoring weak demand.
In June, food prices fell by 2.1% year-on-year, compared to a 2% decline in May. Notably, the price of fresh vegetables dropped by 7.3%, while it had risen by 2.3% in May. The price decline for fresh fruits widened from 6.7% in May to 8.7%. Beef prices saw a year-on-year decrease of 13.4%.
The CPI decreased by 0.2% month-on-month, compared to a 0.1% decrease in May. This represents a worsening from the expected 0.1% decrease.
The Producer Price Index (PPI) in June was down by 0.8% year-on-year, which was smaller than the previous month’s 1.4% decrease and in line with the expected 0.8% decline.
Although the PPI decline is the smallest in 17 months, Reuters analysis attributes this to a lower base from the previous year.
Gabriel Ng, economist at Capital Economics, noted, “The further decline in the prices of durable consumer goods highlights the ongoing deterioration in manufacturing overcapacity.”
Ng added, “Government policies continue to prioritize investment, which will further exacerbate this issue, continuing to hinder inflation.”
He estimated that the full-year CPI increase would only reach 0.5%, far below the official inflation target of 3% for 2024.
Following the data release, the Chinese stock market performed poorly, and the renminbi exchange rate fell to a near 8-month low.
Amid the unfavorable economic outlook, from automobiles to coffee, Chinese retailers have been offering discounts and promotions to cope with subdued consumer spending.
Data from the National Bureau of Statistics also indicated that in June, the drop in gasoline prices accelerated from 5.2% in the previous month to 6%, while the price decline for new energy vehicles decreased from 6.9% in May to 7.4%.
Excluding the more volatile food and energy prices, the core inflation rate in June was 0.6%, unchanged from May.
(This article is based on relevant reports from Reuters.)