China Inflation To Rebound On Economic Recovery

China’s consumer price inflation is set to rebound further over the coming months as the economy is set to recover moderately driven by policy measures, Capital Economics’ economists said.

Official data released over the weekend showed that consumer prices climbed 0.1 percent annually in August, reversing a 0.3 percent drop in July, which was the first decline since February 2021.

Beijing has set an inflation target of around 3 percent for this year.

Exit from deflation was underpinned by the 0.5 percent increase in non-food prices, while food prices slid 1.7 percent.

Core inflation that excludes prices of food and energy, held steady at 0.8 percent in August, which was the strongest seen since last January.

At the same time, the annual decline in producer prices slowed to 3.0 percent in August from 4.4 percent in July, official data showed. The deceleration largely reflects high base of comparison.

Zichun Huang and Julian Evans-Pritchard, economists at Capital Economics, said producer prices are likely to exit deflation by the end of the year and consumer prices will continue to climb over the coming months, averaging around 1.0 percent in 2024 and 2025.

“Core inflation is likely to pick up in the coming months as the inventory hangover from the pandemic export boom is absorbed and policy support contributes to a partial recovery in domestic demand,” the economists added.

Despite the property market slump, Beijing expects to achieve the growth target of around 5 percent this year. The Chinese government has rolled out a slew of measures to combat the economic downturn following the reopening related bounce back at the start of the year.

The People’s Bank of China also eased its borrowing rules and lowered mortgage rates for the first-time home buyers.

The PBoC reported that bank lending increased sharply to CNY 1.36 trillion in August from CNY 345.9 billion in July. The expected level was CNY 1.2 trillion. Total social financing reportedly advanced to CNY 3.12 trillion in August from CNY 528.2 billion in July.

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