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)
TT

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.



Saudi PIF, Hong Kong Monetary Authority Sign MoU on Investment Fund

The MoU was signed at FII 8th Edition in Riyadh. SPA
The MoU was signed at FII 8th Edition in Riyadh. SPA
TT

Saudi PIF, Hong Kong Monetary Authority Sign MoU on Investment Fund

The MoU was signed at FII 8th Edition in Riyadh. SPA
The MoU was signed at FII 8th Edition in Riyadh. SPA

The Public Investment Fund (PIF) and the Hong Kong Monetary Authority (HKMA) signed on Thursday a memorandum of understanding (MoU) to work towards jointly anchoring a new investment fund, with a target size of $1 billion.

The MoU was signed at FII 8th Edition in Riyadh.

Under the MoU, the fund would explore investment in manufacturing, renewables, fintech, and healthcare, supporting the localization of companies connected to Hong Kong and the Greater Bay area in Saudi Arabia. It would create highly skilled local jobs and drive economic growth by fostering regional champions in the target sectors. It would reinforce Hong Kong’s position as one of the world’s leading financial hubs, leveraging its diverse talent pool, efficient financial infrastructure and deep liquidity. The signing of this MoU is a new milestone that underlines the economic ties between two leading institutions: PIF and HKMA.

The proposed new fund aligns with PIF’s economic diversification and sustainability strategy.

This partnership has the potential to drive shared prosperity by investing in industries that will shape future economies. It combines HKMA’s long-term investment expertise with PIF’s strategy for the target sectors.

The new fund would promote foreign direct investments via Hong Kong, providing a platform for companies to internationalize their businesses and access attractive investment opportunities in Saudi Arabia.