China’s Deflation Pressures Ease, More Steps Expected to Spur Demand

A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
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China’s Deflation Pressures Ease, More Steps Expected to Spur Demand

A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)
A woman shops at a shoes shop in Beijing, China, 07 September 2023. (EPA)

China's consumer prices returned to positive territory in August while factory-gate price declines slowed, data showed on Saturday, as deflation pressures ease amid signs of stabilization in the economy.

But analysts say more policy support is needed to shore up consumer demand in the world's second-biggest economy, with a labor market recovery slowing and household income expectations uncertain.

The consumer price index (CPI) rose 0.1% in August from a year earlier, the National Bureau of Statistics said, slower than the median estimate for a 0.2% increase in a Reuters poll. CPI fell 0.3% in July.

Core inflation, which excludes food and fuel prices, was unchanged at 0.8% in August.

The producer price index (PPI) fell 3.0% from a year earlier, in line with expectations, after a drop of 4.4% in July. The drop in factory prices was the smallest in five months.

"There is a bit of improvement in the inflation profile. In the meantime, the PPI deflation appears to be narrowing, pointing to a slow and moderate restoring process," said Zhou Hao, chief economist at Guotai Junan International.

"In general, the inflation (rate) still points to weak demand and requires more policy support for the foreseeable future."

Food prices fell 1.7% on year while non-food costs rose 0.5% - led by rising costs linked to tourism, the bureau said.

Recent floods have damaged corn and rice crops in China's key northern grain-producing belt, sparking domestic food inflation fears as consumers worldwide face tightening food supplies caused by the war in Ukraine.

"Both CPI and PPI are likely to show modest improvements in the fourth quarter," said Luo Yunfeng, an economist at Huajin Securities.

Deflation pressures

Compared with the previous month, CPI rose 0.3%, picking up from 0.2% in July, the statistics bureau said.

Factory-gate deflation moderated in August due to improving demand for some industrial products and rising international crude oil prices, the statistics bureau said.

China's anemic price changes contrast sharply with the surging inflation most other major economies have seen since the COVID-19 pandemic waned, forcing their central banks to rapidly raise interest rates.

China in July became the first of the Group of 20 wealthy nations to report a year-on-year decline in consumer prices since Japan's last negative headline CPI reading in August 2021.

August trade data showed China's exports and imports both narrowing their declines, joining a run of other indicators showing a possible stabilization in the economic downturn, as policymakers seek to spur demand and fend off deflation.

"With early signs of growth stabilization, we see deflationary pressures easing, a trend reflected in higher commodity prices in August," ANZ analysts said in a note.

Beijing has announced a series of measures in recent months to shore up growth, including mortgage rate cuts and the easing of borrowing rules last week by the authorities to aid home-buyers.

China's central bank could continue to cut interest rates and bank reserve requirement ratios, said Bruce Pang, chief economist at Jones Lang Lasalle.

Premier Li Qiang said this week that China is expected to achieve its 2023 growth target of around 5%, but some analysts believe the target could be missed due to a worsening property slump, weak consumer spending and tumbling credit growth.



Israeli Cabinet Approves 2025 State Budget with Spending Cuts to Pay for Ongoing War

A usually crowded beach in Tel Aviv is nearly deserted on August 25, 2024, amid cross-border hostilities between Israel and Lebanon's Hezbollah. (Photo by Ahmad GHARABLI / AFP)
A usually crowded beach in Tel Aviv is nearly deserted on August 25, 2024, amid cross-border hostilities between Israel and Lebanon's Hezbollah. (Photo by Ahmad GHARABLI / AFP)
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Israeli Cabinet Approves 2025 State Budget with Spending Cuts to Pay for Ongoing War

A usually crowded beach in Tel Aviv is nearly deserted on August 25, 2024, amid cross-border hostilities between Israel and Lebanon's Hezbollah. (Photo by Ahmad GHARABLI / AFP)
A usually crowded beach in Tel Aviv is nearly deserted on August 25, 2024, amid cross-border hostilities between Israel and Lebanon's Hezbollah. (Photo by Ahmad GHARABLI / AFP)

The Israeli cabinet approved a long-delayed wartime budget package on Friday that includes a raft of tax increases and spending cuts to pay for a war that has entered its second year with no immediate end in sight.

Israel has had to boost military spending by billions of shekels to accommodate the cost of a war that has resulted in thousands of troops deployed in Gaza and Lebanon, while much of the economy has slowed drastically due to a lack of workers. This week, the finance ministry cut the 2024 growth outlook for the second time this year to just 0.4% from an earlier estimate of 1.1%.

The cost of fighting and the absence of tens of thousands of reservists serving at the front, along with the exclusion of thousands of Palestinian workers from Israel for security reasons, have weighed heavily on the main pillars of the economy including tech, construction and agriculture.

"The main goal in the 2025 budget is maintaining the security of the state and achieving victory on all fronts, while maintaining the resilience of the Israeli economy," Finance Minister Bezalel Smotrich said in a statement.

In all, the budget includes a roughly 40-billion-shekel package of tax hikes and spending cuts to try to rein in a budget deficit now running at 8.5% of GDP.

Overall spending was set at 744 billion shekels ($199.23 billion), of which 161 billion will go towards debt servicing.

All three of the main credit-rating agencies have cut their ratings on Israel this year on worries that the war could continue well into next year.

Among the measures likely to bite hardest on Israeli households, value-added tax will rise in 2025 to 18% from 17%. In addition, there will be spending cuts across most ministries.

The package will have to go to parliament for approval, which Smotrich said was expected by January. Failure to approve the budget by the end of March would trigger new elections.