China consumer inflation dips below zero again as demand weakens

BEIJING – China’s consumer prices slipped below zero for the first time in three months, as deflationary pressures persist in an economy at risk of a slowdown.

The

consumer price index fell 0.4 per cent in August

from a year earlier, said the National Bureau of Statistics on Sept 10. The median forecast of economists surveyed by Bloomberg was for a 0.2 per cent drop, after inflation dipped to zero in July.

Factory deflation eased for the first time in half a year. The producer price index decreased 2.9 per cent, remaining in negative territory for the 35th straight month but narrowing its decline from July’s 3.6 per cent drop.

China is in its third straight year of deflation for the first time since it started to transition away from central planning in the late 1970s. Nine straight quarters of economy-wide price declines reflect a mismatch between supply and demand, weighing on the balance sheets of companies and pushing down the earnings of both households and the government.

Frail domestic demand will be an obstacle to a government effort to reverse deflation by curbing the relentless competition among businesses that has been blamed for eroding profits and driving down wages in the world’s second-biggest economy.

Whether consumer and producer prices will start to rebound is a question with profound implications for markets, from equities to bonds. 

Although there are early signs of output reductions for some commodities such as coal, steel and copper, according to official data in July, it is not yet clear if the turnaround can be sustained and lead to a long-term rebound in prices.

A Chinese lithium mine that pushed up battery-metal prices when it halted production in August is now gearing up to restart sooner than previously anticipated, a person with direct knowledge of the matter told Bloomberg, underlining the uncertainty around the policy push.

China’s economy, meanwhile, began to decelerate across the board this summer and appears to have lost even more traction in the second half of August, according to Bloomberg Economics.

Retail sales of cars and home appliances were among the items that registered the biggest drops because of poor demand. Export growth also slowed to its weakest level in six months in August, as a slump in shipments to the US deepened again. BLOOMBERG