China on the brink of consumer deflation

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China’s economy teetered on the brink of deflation in June, prompting calls for Beijing to introduce a stronger stimulus package to sustain the country’s post-Covid recovery.

The consumer price index was flat year-on-year and declined 0.2 percent from the previous month, while factory gate prices fell at their fastest pace since 2016 due to softening demand for consumer and manufactured products.

Analysts expect the data to prompt China’s central bank, the People’s Bank of China, to slash interest rates again, adding to a round of cuts last month that many believe Beijing is facing with fiscal pressure. have to be complemented with incentive policies.

“The ultra-low inflation reading supports our view that the PBOC is likely to implement two more rounds of policy rate cuts,” economists at Nomura wrote in a research note.

China is targeting 5 percent GDP growth this year as the economy emerges from strict COVID-19 controls, but the recovery is proving fragile with asset prices and exports plunging.

Consumption is still rising, but there are concerns the government will have to do more to sustain the recovery as global economic growth slows, reducing demand for China’s exports.

The weakening economy comes as Beijing seeks to ease tensions with the US, which many blame for a lack of investor confidence after tit-for-tat sanctions on China.

During a trip to Beijing over the weekend, US Treasury Secretary Janet Yellen tried to reassure her hosts, including China’s number two official, Premier Li Qiang, that the US was not seeking full-scale economic isolation.

The decline in CPI missed the 0.2 percent increase expected in a Reuters poll of analysts.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

The producer price index declined 5.4 percent from the same period a year earlier, faster than a 4.6 percent drop in May and faster than analysts polled by Reuters had forecast a 5 percent decline.

Goldman Sachs analysts said the drop in commodity prices was partly due to weak commodity prices and continued price cuts due to China’s mid-year “618” online shopping festival.

Food inflation rose 10.8 per cent year-on-year in June, partly due to higher prices of vegetables, compared to a decline of 1.7 per cent in May.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

But pork prices were lower on weak demand, falling 7.2 percent year over year in June.

The weak economic performance comes as Chinese economists are urging the government to shift its traditional form of stimulus – investment in large infrastructure projects – to target consumers.

“This may directly correspond to our actual economic blockages and shortcomings,” Cai Fang, a senior economist at the state-run Chinese Academy of Social Sciences, said, according to a transcript of a business forum published by Chinese news website Caijing.

China’s onshore yuan opened at Rmb7.2256 against the dollar and was down at Rmb7.2339 at midday, showing a slight weakness from the end of the previous late session, according to a Reuters report.

Additional reporting by Sun Yu in Beijing

GET FREE CHINESE ECONOMY UPDATES

we will send you one myFT Daily Digest Latest Email Rounding chinese economy News every morning.

China’s economy teetered on the brink of deflation in June, prompting calls for Beijing to introduce a stronger stimulus package to sustain the country’s post-Covid recovery.

The consumer price index was flat year-on-year and declined 0.2 percent from the previous month, while factory gate prices fell at their fastest pace since 2016 due to softening demand for consumer and manufactured products.

Analysts expect the data to prompt China’s central bank, the People’s Bank of China, to slash interest rates again, adding to a round of cuts last month that many believe Beijing is facing with fiscal pressure. have to be complemented with incentive policies.

“The ultra-low inflation reading supports our view that the PBOC is likely to implement two more rounds of policy rate cuts,” economists at Nomura wrote in a research note.

China is targeting 5 percent GDP growth this year as the economy emerges from strict COVID-19 controls, but the recovery is proving fragile with asset prices and exports plunging.

Consumption is still rising, but there are concerns the government will have to do more to sustain the recovery as global economic growth slows, reducing demand for China’s exports.

The weakening economy comes as Beijing seeks to ease tensions with the US, which many blame for a lack of investor confidence after tit-for-tat sanctions on China.

During a trip to Beijing over the weekend, US Treasury Secretary Janet Yellen tried to reassure her hosts, including China’s number two official, Premier Li Qiang, that the US was not seeking full-scale economic isolation.

The decline in CPI missed the 0.2 percent increase expected in a Reuters poll of analysts.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

The producer price index declined 5.4 percent from the same period a year earlier, faster than a 4.6 percent drop in May and faster than analysts polled by Reuters had forecast a 5 percent decline.

Goldman Sachs analysts said the drop in commodity prices was partly due to weak commodity prices and continued price cuts due to China’s mid-year “618” online shopping festival.

Food inflation rose 10.8 per cent year-on-year in June, partly due to higher prices of vegetables, compared to a decline of 1.7 per cent in May.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

But pork prices were lower on weak demand, falling 7.2 percent year over year in June.

The weak economic performance comes as Chinese economists are urging the government to shift its traditional form of stimulus – investment in large infrastructure projects – to target consumers.

“This may directly correspond to our actual economic blockages and shortcomings,” Cai Fang, a senior economist at the state-run Chinese Academy of Social Sciences, said, according to a transcript of a business forum published by Chinese news website Caijing.

China’s onshore yuan opened at Rmb7.2256 against the dollar and was down at Rmb7.2339 at midday, showing a slight weakness from the end of the previous late session, according to a Reuters report.

Additional reporting by Sun Yu in Beijing