Weak price data underlines demand slowdown – UOB Group

China’s consumer price index (CPI) rose further to 0.6% y/y in August, but was below market expectations (Bloomberg estimate: 0.7%; July: 0.5%). The rebound in food inflation was the driver, which more than offset the decline in non-food inflation, notes UOB Group economist Ho Woei Chen.

Overall CPI rises less than expected

“China’s CPI rose in August, driven by a sharp rebound in food prices, which turned positive for the first time since July 2023. Amid persistent weak demand, core inflation and services inflation eased further, while PPI deflation widened sharply in August.”

“Taking into account higher food inflation, we are adjusting our headline CPI forecast higher to 0.5% from 0.3% for 2024 (2023: 0.2%). However, we revised our full-year forecast for PPI to -2.0% from -1.3% for 2024 as underlying demand remained weak.”

“Weaker domestic price pressure and monetary policy easing in developed economies combined to support further PBOC easing. The near-term focus will be on a further cut in banks’ reserve requirement ratio (RRR), aimed at freeing up long-term liquidity to boost credit expansion, which has slowed sharply this year due to weak investment and credit demand mortgage.”