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China Inflation August 2023

China: Consumer prices rebound year on year in August; producer prices continue to decline

Consumer inflation clocked 0.1% in August in annual terms, contrasting July’s 0.3% year-on-year drop in prices but slightly below market expectations. Falls in prices for food and transport partially offset rising prices for clothing, education, culture, entertainment and health. The trend pointed down slightly, with annual average inflation coming in at 1.0% in August (July: 1.2%). Lastly, consumer prices rose 0.30% from the previous month in August, picking up from the 0.20% rise logged in July. August’s result marked the highest reading since January.

Meanwhile, producer prices fell 3.0% on an annual basis in August, which was a more modest fall than July’s 4.4% decrease.

Prices pressures should pick up from now to year-end on a less favorable base effect for energy prices, as global energy prices tumbled in Q4 2022 but have risen notably in recent weeks. That said, limp domestic demand will keep inflation muted.

On the near-term outlook, Goldman Sachs’ analysts said:

“We expect (year-over-year) PPI deflation to persist in the coming months, but continue to narrow in the coming months. For headline CPI, we expect a ‘U-shaped’ recovery – energy prices are likely to bottom out as our commodity research team forecasts, and services inflation should pick up as the output gap narrows.”

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