China’s consumer prices show more modest decline than anticipated, reports reveal

BEIJING — China’s inflation data for July indicates a slight improvement compared to June.

According to the National Bureau of Statistics, the consumer price index (CPI) fell by 0.3% in July compared to the previous year, but increased by 0.2% compared to June.

The year-on-year CPI for July exceeded expectations, with a decline of only 0.4% according to analysts surveyed by Reuters.

The producer price index (PPI) fell by 4.4% in July compared to the previous year, performing better than the 5.4% decline in June.

However, the year-on-year PPI reading was worse than the 4.1% forecast by a Reuters poll.

The decline in pork prices, a staple food in China, contributed to the overall decline in the CPI in July, with a year-on-year drop of 26%. Meanwhile, tourism prices rose by 13.1% compared to the previous year.

Official data accessed via Wind Information shows that the core CPI, which excludes food and energy prices, rose by 0.8% compared to the previous year, marking the highest increase since January.

Bruce Pang, chief economist and head of research for Greater China at JLL, predicts that producer prices will likely increase on a year-on-year basis before the consumer price index does. He expects consumer prices to continue to be affected by falling pork prices and a high base effect, while core CPI may gradually rise.

Lackluster domestic demand has continued since the pandemic. China’s consumer price index remained flat in June compared to the previous year. Second-quarter data led several economists to express concerns about deflation, a persistent decrease in prices over time.

The central bank of China has pushed back against these fears and expects consumer prices to recover after a decline in July.

Oxford Economics predicts a 0.5% growth in China’s consumer price index this year, while the producer price index is expected to fall by 3.5%.

“China’s weak demand in Q2 can be attributed to its relatively contained demand-side stimulus during Covid, years of regulatory tightening, and an ongoing housing correction,” said Louise Loo, lead economist at Oxford Economics, in a note on Tuesday.

Loo also noted that it is a “positive development” that authorities are choosing targeted easing instead of large-scale stimulus.

China reported trade data on Tuesday, revealing a sharp decline in both overseas and domestic demand.

Exports fell by 14.5% in July compared to the previous year, while imports dropped by 12.4% in U.S. dollar terms, both performing worse than analysts’ expectations.

The sharp decline in imports was partly due to commodity price declines, but estimates from Oxford Economics suggest that imports also declined in real volume terms by around 0.4%.

China is set to release retail sales, industrial production, and other data for July on August 15.

This is a breaking news story. Please check back for updates.

Correction: This article has been updated to accurately reflect that Oxford Economics expects China’s producer price index to fall 3.5% this year. An earlier version of the story misstated it.