China’s economic recovery continues as pressure eases on consumers, manufacturers in August

China’s consumer inflation rate eased in August, while downward price pressure on the manufacturing sector following the impact of the coronavirus also improved, data released on Wednesday showed. The consumer price index (CPI) for August was 2.4 per cent, improving from a 2.7 per cent gain in July, and in line with the 2.4 per cent gain expected by analysts. August’s producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, fell 2.0 per cent year on year, data from the National Bureau of Statistics (NBS) showed. That was better than July’s 2.4 per cent decline, marking a seventh straight monthly drop, and only slightly worse than the 1.9 per cent contraction tipped by analysts in a survey by Bloomberg. Food prices, which make up about a third of the weighting in CPI, rose 11.2 per cent in August from a year earlier, down from a 13.2 per cent increase in July. While the price of meat increased 42 per cent, pork prices rose 52.6 per cent year on year in August compared to 85.7 per cent in July, while grain rose by 1.5 per cent. “According to estimates, of the 2.4 per cent year-on-year increase in August, the carry-over impact of last year‘s price changes was approximately 2.1 percentage points, and the impact of the new price increase was approximately 0.3 percentage points,” said Dong Lijuan, a senior statistician at the NBS. “Affected by the comparison base last year, pork prices rose by 52.6 per cent. “Pork supply has improved, but demand continues to increase … affected by factors such as rising feed costs, demand recovery, and rising pork prices, the prices of beef, lamb, chicken and duck have all increased to varying degrees.” The overall arrangement of pandemic containment and economic development has gained obvious results, the market supply and demand are generally balanced Dong Lijuan Non-food prices rose 0.1 per cent in August from a year earlier, up from being unchanged in July. “Among non-food items, summer trips increased, and air tickets and hotel accommodation prices rose by 7.3 per cent and 2.1 per cent respectively [from the previous year],” Dong added. “The overall arrangement of pandemic containment and economic development has produced obvious results, with market supply and demand generally balanced. “In August, industrial production continued to improve, market demand continued to recover, and prices of international bulk commodities such as crude oil, iron ore, and non-ferrous metals continued to rise, further driving up domestic industrial product prices.” In August, China’s official manufacturing purchasing managers’ index (PMI) stood at 51.0 in August, down slightly from 51.1 in July, with a reading above 50 signifying growth in activity in the survey of larger state-owned factories. China’s official non-manufacturing PMI, a gauge of sentiment in the services and construction sectors, was 55.2 in August, compared with 54.2 in July. The Caixin/Markit manufacturing PMI rose to 53.1 in August, from 52.8 in July. This survey measures sentiment among smaller, largely private firms. The Caixin/Markit services PMI, which also focuses on smaller, private firms, fell to 54.0 in August, from 54.1 in July. Looking ahead, headline consumer price inflation probably has further to fall as pork supply continues to recover from last year’s African swine fever outbreak Julian Evans-Pritchard “Headline consumer price inflation slipped last month on the back of easing food price inflation. But core consumer prices rose for the first time since the Covid-19 outbreak and the ongoing recovery in economic activity continued to lift factory gate prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “Looking ahead, headline consumer price inflation probably has further to fall as pork supply continues to recover from last year’s African swine fever outbreak. “But the bigger picture is that, with infrastructure-led stimulus still being ramped up, demand-side pressures on prices will probably strengthen in the coming months, pushing up underlying inflation.” Domestic inflation is still under downturn pressure, and the possibility of further tightening of monetary policy is relatively low Liang Zhonghua Liang Zhonghua, chief macro analyst of the research institute of Zhongtai Securities, predicts CPI will decelerate to below 2 per cent year on year in September, while PPI will remain around minus 2 per cent. “Currently the recovery of demand is still slow, catering, travel and other consumer activities have not fully returned to normal yet,” he said. “When demand remains weak, the economic downturn pressure is still in place. “Under such circumstances, domestic inflation is still under downturn pressure, and the possibility of further tightening of monetary policy is relatively low.”