China’s consumer prices fell into deflation in July, while factory gate prices extended their declines, as the world’s second-largest economy struggled to revive demand and pressure mounted for authorities to release more direct stimulus.
The consumer price index (CPI) for the month dropped 0.3% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, a slightly slower fall than the median estimate for a 0.4% decrease in a Reuters poll. It was the first year-on-year decline since February 2021. CPI was unchanged in June.
The producer price index (PPI) fell for a 10th consecutive month, down 4.4% from a year earlier after a 5.4% drop the previous month. That compared with a forecast for a 4.1% fall.
China’s economic recovery slowed after a brisk start in the first quarter, as demand at home and abroad weakened. Authorities have rolled out a flurry of policy measures to support the economy, with more steps expected.
“Both CPI and PPI in year-on-year terms fell into negative territory and confirmed economic deflation,” said Xing Zhaopeng, senior China strategist at ANZ.
Xing expected the CPI to hover around 0 in the second half of the year, saying “it would be hard to manoeuvre monetary policy. The Politburo meeting called for a stable yuan exchange rate, which would conflict with monetary easing.”
Asian shares were on the defensive on Wednesday as the Chinese price data confirmed its economic recovery economy was losing steam.
“Markets needs to see more actionable support measures from the Chinese authorities to stay upbeat,” said Frances Cheung, rates strategist at OCBC Bank in Singapore.
“While there is room for some mild monetary policy easing, the onus is on the fiscal side. Otherwise, economic data showing some growth improvement is required, which is not coming through yet.”