On Saturday, the National Bureau of Statistics of the People’s Republic of China announced that the Producer Price Index (PPI) for July fell by 3.6% year-on-year, a larger drop than expected, while the Consumer Price Index (CPI) remained unchanged. This highlights the impact of weak domestic demand and ongoing trade uncertainty on consumer and business confidence.
According to data released by the Chinese statistics bureau, the July PPI dropped by 3.6% year-on-year, exceeding economists’ forecast of a 3.3% decline and matching the near two-year low reached in June. The PPI in July also showed a 0.2% decrease compared to the previous month, an improvement from the 0.4% decline in June.
The Consumer Price Index (CPI) rose by 0.4% month-on-month in July, staying flat year-on-year. The core CPI, excluding food and energy prices, increased by 0.8% compared to the same period last year.
Despite signs of easing deflationary pressures, analysts see mixed signals. Xing Zhaopeng, a senior China strategist at ANZ Bank, noted improvements in both the month-on-month PPI and year-on-year core CPI values. However, Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, cautioned that “it remains unclear whether China’s monetary tightening will end here.”
“The real estate industry is still unstable. The economy continues to rely more on external demand than domestic consumption. The labor market remains weak,” Zhang said.
Xing expects that the upcoming measures to curb unruly competition in sectors like automobiles through the “internal anti-monopoly” policy starting in August will push up the year-on-year PPI. Nonetheless, other analysts remain cautious, pointing out that the impact of these policies on final demand could be limited if China lacks stimulus on the demand side or reforms to improve people’s livelihoods. The persistent downturn in the real estate market and the fragile trade relationship between China and the U.S. continue to pressure consumer spending and factory operations.
China’s factory deflation has persisted for 34 months, intensifying deflationary pressures and reflecting the ongoing fragility of domestic demand. The government has taken actions to curb vicious competition among enterprises. However, the data released on Saturday indicates that the early measures taken by the Chinese government to address price competition have not yet yielded significant results.
Bloomberg suggests that the government’s public relations efforts appear to have had minimal impact on public perception, as reflected in the continuous decline in price expectations according to the central bank’s household survey since the end of last year.
The broad index measuring the overall price level of the economy, the GDP deflator, has seen a continuous decline for nine consecutive quarters, marking the longest downward trend in decades.
Economist Eric Zhu from Bloomberg believes that while the overall situation will remain unchanged, China still has a long way to go to overcome deflationary pressures.