China: Consumer Prices Rise in August, PPI Stuck in Deflation

A woman shops in a supermarket, Beijing, China, Sept. 9, 2024 (EPA)
A woman shops in a supermarket, Beijing, China, Sept. 9, 2024 (EPA)
TT

China: Consumer Prices Rise in August, PPI Stuck in Deflation

A woman shops in a supermarket, Beijing, China, Sept. 9, 2024 (EPA)
A woman shops in a supermarket, Beijing, China, Sept. 9, 2024 (EPA)

China's consumer inflation accelerated in August to the fastest pace in half a year but the uptick was due more to higher food costs from weather disruptions than a recovery in domestic demand as producer price deflation worsened.

A sputtering start in the second half is mounting pressure on the world's second-largest economy to roll out more policies amid a prolonged housing downturn, persistent joblessness, debt woes and rising trade tensions.

The consumer price index (CPI) rose 0.6% from a year earlier last month, versus a 0.5% rise in July, data from the National Bureau of Statistics (NBS) showed on Monday, but less than a 0.7% increase forecast in a Reuters poll of economists.

Extreme weather this summer from deadly floods to scorching heat has pushed up farm produce prices, contributing to faster inflation, Reuters reported.

China's affected crops due to various natural disasters totaled 1.46 million hectares in August, state media reported on Monday.

“The higher CPI in August was due to high temperatures and the rainy weather,” NBS statistician Dong Lijuan said in a statement.

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.

“But the rebound was softer than expected and did little to ease deflation concerns. Much of the improvement has been food reflation, which is susceptible to fluctuating weather conditions and capacity changes,” said Junyu Tan, North Asia Economist at Coface.

Core inflation, excluding volatile food and fuel prices, was 0.3% in August - the lowest in nearly three and a half years - down from 0.4% 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.

In unusually strong comments, China's ex-central bank governor Yi Gang urged efforts to fight deflationary pressure at the Bund Summit in Shanghai last week.

A national campaign to earmark $41 billion in ultra-long treasury bonds to support equipment upgrades and trade-in of consumer goods has proven lukewarm in spurring consumer confidence, with domestic car sales extending declines for a fourth month in July.

“These policies will take time to filter through, so a demand-led reflation is obviously not yet on the horizon,” Tan said.

Meanwhile, the producer price index (PPI) in August slid 1.8% from a year earlier, the largest fall in four months. That was worse than a 0.8% decline in July and below a forecast 1.4% fall.

“The ongoing deflationary pressures boil down into a broader problem of production surplus, which is still outstripping demand,” said Tan.

China's yuan dipped against the dollar on Monday as long-dated yields hit record lows after monthly inflation data added to economic worries and calls for fresh easing.



Gold Extends Fall to Sixth Day ahead of Fed, US Inflation Data

A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
TT

Gold Extends Fall to Sixth Day ahead of Fed, US Inflation Data

A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)

Gold extended losses for a sixth straight session on Wednesday to hover near the two-week lows hit the day before on lowered expectations of deeper rate cuts, as traders turned their focus to the Federal Reserve's meeting minutes and inflation data.

Spot gold fell about 0.2% to $2,617.79 per ounce by 1145 GMT, having touched its lowest level since Sept. 20 on Tuesday. US gold futures for December delivery was steady at $2,636.20.

"The precious metals sector seems somewhat disappointed after yesterday's meeting by China's National Development and Reform Commission, which reignited concerns about growth and demand from China in Q4. Also, gold is confronting the possibility of less aggressive rate cuts," Zain Vawda, market analyst at MarketPulse by OANDA, said, Reuters reported.

Non-yielding bullion is considered a safe investment and thrives in a low interest rate environment.

China is the world's largest consumer of gold, although record high prices and worries about economy have dampened consumer sentiment. A rebound in gold prices to a record peak also dashed the Indian bullion industry's expectations of a lucrative festival season.

Even after the losses, gold prices are set for an over 25% rise this year after prices hit a record peak of $2,685.42 on Sept. 26.

"The market is currently awaiting the upcoming inflation data for US. Since last week's payroll data, the market is discussing if we are in soft landing or no landing scenario," UBS analyst Giovanni Staunovo said.

The minutes from Fed's September policy meeting are due at 1800 GMT, while the US Consumer Price Index (CPI) and Producer Price Index (PPI) data is due on Thursday and Friday, respectively.

"A significant rise in inflation could alter the scenario. However, considering the geopolitical situation and market uncertainties, we might continue to see range-bound trading with limited downside rallies," said Vawda.

In other metals, spot silver steadied at $30.69 per ounce. Platinum held steady at $949.70 and palladium fell 1% to $1,011.51.