Extreme weather this summer from deadly floods to scorching heat has pushed up farm produce prices, contributing to faster inflation.
China’s affected crops due to various natural disasters totalled 1.46 million hectares in August, state media reported on Monday.
Food prices jumped 2.8% on year in August from an unchanged outcome in July, while non-food inflation was 0.2%, easing from 0.7% in July.
The consumer inflation gauge was up 0.4% month-on-month, compared with a 0.5% increase in July and missing economists’ expectations of a 0.5% gain.
“We think increased fiscal spending will drive an uptick in domestic demand over the coming months.
Beijing, September 9 (Reuters) – China’s consumer inflation surged in August to the highest level in six months, but the increase was primarily caused by higher food prices as a result of weather-related disruptions rather than a rebound in domestic demand as producer price deflation deepened.
A faltering second half is putting more pressure on the second-biggest economy in the world to implement more policies in the face of a protracted housing slump, ongoing unemployment, debt problems, and escalating trade tensions.
The National Bureau of Statistics (NBS) released data on Monday that showed the consumer price index (CPI) increased by 0.6 percent from a year earlier last month, compared with a 0.5 percent increase in July. However, this was less than the 0.7 percent increase predicted by economists surveyed by Reuters.
The disastrous floods and intense heat of this summer’s weather have driven up the cost of farm produce, hastening inflation.
As per the report released by state media on Monday, China’s crop damage in August from different natural disasters amounted to 1.46 million hectares.
In a statement, NBS statistician Dong Lijuan stated, “The higher CPI in August was due to high temperatures and the rainy weather.”.
In August, food prices increased by 2 points 8 percent year over year after remaining unchanged in July. Meanwhile, non-food inflation decreased to 0 points 2 percent from 0 points 7 percent in July.
Yet, the recovery was less robust than anticipated and offered little comfort to those worried about deflation. According to Coface’s North Asia Economist Junyu Tan, a significant portion of the improvement has come from food reflation, which is prone to capacity fluctuations and changing weather.
With volatile food and fuel prices excluded, core inflation dropped to 0.3 percent in August from 0.4 percent in July, marking the lowest level in almost three and a half years.
The consumer inflation measure increased by 0.4 percent on a month-over-month basis, which was less than the 0.5 percent gain predicted by economists in July.
Yi Gang, the former governor of China’s central bank, made unusually strong remarks last week at the Bund Summit in Shanghai, calling for action to counter deflationary pressure.
July saw declines in domestic car sales for a fourth month, despite a nationwide campaign to set aside $41 billion in ultra-long treasury bonds to support consumer goods trade-ins and equipment upgrades. The campaign has not proved particularly effective in boosting consumer confidence.
A demand-led reflation is clearly not yet in the cards, according to Tan, because these policies will take time to take effect.
In August, there was the biggest decline in four months in the producer price index (PPI), which fell by 1.8% from a year earlier. That was below the predicted 1 percent decline and worse than the 0.8 percent decline in July.
“The persistent deflationary pressures stem from a more general issue of excess production, which continues to exceed demand,” Coface’s Tan stated.
“We believe that during the next few months, rising fiscal spending will spur an increase in domestic demand. But more fiscal spending may ultimately make the overcapacity issue worse because government policy is still too biased toward investment, according to Capital Economics assistant economist Gabriel Ng.
Global brokerages have reduced their China 2024 growth projections to less than the official goal of approximately 5 percent due to shifting economic conditions.
According to a central bank official on Thursday, China has the option to reduce the amount of cash that banks are required to set aside as reserves.
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Editing by Jacqueline Wong; Additional reporting by Samuel Shen in Shanghai; Qiaoyi Li and Ryan Woo.
