China's Persistent Deflation Shadow... CPI Fails to Surpass 1% for 17 Consecutive Months

China's low inflation trend continues. Despite various government consumption stimulus measures and real estate support policies, concerns about deflation (a decline in prices amid economic recession) have not been alleviated.

On the 9th, China's National Bureau of Statistics announced that the Consumer Price Index (CPI) for July rose by 0.5% year-on-year. This exceeds the previous month's figure (0.2%) and expert forecasts (0.3%), but it still has not surpassed the 1% threshold for 17 consecutive months since February last year (1.0%).

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[Image source=Reuters Yonhap News]

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However, after hitting a bottom with a 0.8% year-on-year decline in January this year, there has been some recovery, and the July figure represents the largest rebound in five months since February (0.7%).

By item, prices of food, tobacco, and alcohol rose by 0.2%, with pork and fresh vegetables leading the increase at 20.4% and 3.3%, respectively. Beef and mutton prices fell by 12.9% and 6.3%, respectively. Other goods and services such as education, culture, and entertainment increased by 4.0% and 1.7%, respectively, while clothing (1.5%), healthcare (1.4%), household goods and services, housing (0.1%), and transportation and communication (0.6%) also showed upward trends.

The Producer Price Index (PPI) fell by 0.8% year-on-year, marking the 22nd consecutive month of negative growth since September 2022 (0.9%). This was the same as the previous month's figure (-0.8%) and slightly better than expert expectations (-0.9%).

Recently, as China's economic recovery speed fell short of expectations, the country surprised the market by lowering the Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, to increase liquidity supply. On the 22nd of last month, the People's Bank of China, the central bank, cut the 1-year LPR to 3.35% per annum and the 5-year LPR to 3.85%, each down by 0.1 percentage points from previous levels. This marked the first rate adjustments in 12 months and 5 months, respectively, after a period of freezes.

Export figures, which have supported the Chinese economy alongside domestic demand, also showed disappointing results. According to the General Administration of Customs of China, exports in July increased by only 7.0% year-on-year (in dollar terms), falling short of market expectations (9.4%) and slightly worsening compared to the previous month's figure (8.6%).

China's Gross Domestic Product (GDP) for the second quarter grew by 4.7% year-on-year, marking the lowest growth since the first quarter of last year (4.5%). The cumulative GDP growth rate for the first half of the year was 5.0%, barely meeting the government's annual target.

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