China inflation slows more than expected as Covid-19 flares up

BEIJING – China’s consumer inflation unexpectedly moderated in August as sporadic Covid-19 lockdowns across the nation suppressed spending, while producer price growth slowed more than expected, giving policy makers enough room to support the troubled economy if needed.

The consumer price index rose 2.5 per cent from a year earlier, the National Bureau of Statistics said on Friday, down from 2.7 per cent gain in July and weaker than the 2.8 per cent median forecast in a Bloomberg survey of economists.

Factory-gate inflation slowed to 2.3 per cent from 4.2 per cent in July as commodity prices fell. The median estimate was for a 3.2 per cent gain in the producer price index.

Consumer prices in China have remained mild this year compared to the soaring costs in the US and Europe, where central banks have been hiking interest rates in an attempt to tame inflation. The People’s Bank of China (PBOC) has taken a divergent path, cutting interest rates last month to spur an economy hit by Covid outbreaks and an ongoing property market slump.

Friday’s data “reflects soft domestic demand and suggests that further easing is needed to stabilize growth,” said Liu Peiqian, chief China economist at NatWest Group. A slower-than-expected pickup in food prices “gives policy makers more room for easing in coming months,” she said.

Core CPI, which excludes the volatile food and energy costs, was unchanged at 0.8 per cent in August, a sign of weak domestic demand in the economy as Covid outbreaks curbed spending on consumer goods and services.

Bloomberg Economics’s China economist Eric Zhu said: “Anemic gains in core consumer prices and deep falls in metal costs are signs of weak demand and a recovery that’s struggling on multiple fronts. This means more policy support is needed.”

Food inflation was largely driven by a pickup in pork, which climbed 22.4 per cent in August from a year ago, after surging 20.2 per cent in July. The government has been trying to keep inflation in check by releasing frozen pork from its massive state reserves, with the National Development and Reform Commission saying Thursday it would release some supplies as major celebrations such as the Mid-Autumn Festival and the National Day holiday draw closer.

A moderate amount of inflation is unlikely to inhibit the central bank from rolling out additional stimulus measures this year as needed to support growth. Earlier this month, PBOC spokeswoman Ruan Jianhong said the “mild” rise in consumer prices provided “good conditions for monetary policy adjustment.”

Premier Li Keqiang said in July that as long as the increase in annual CPI stays under 3.5 per cent, the country can “live with” an economic growth rate that is slightly higher or lower than the government’s target of around 5.5 per cent. Economists expect gross domestic product growth to hit just 3.5 per cent this year. BLOOMBERG