Inflation in China unexpectedly retreated in August, a fresh sign of trouble in the world’s second-largest economy as new lockdowns in large cities again imperil growth.
Consumer prices rose 2.5% in August compared with a year earlier, China’s National Bureau of Statistics said Friday, down from July’s 2.7%. Economists polled by The Wall Street Journal had expected 2.8%.
The slowdown in inflation, while offering some relief to households pressured by Covid-19 restrictions and sinking house prices, adds to signs of weakness in China’s economy as Communist Party leaders prepare to gather in Beijing next month. At that congress, leader
is seeking to overturn recent precedent and secure a third term in office.
He will do so against a darkening economic backdrop. China’s economy is struggling under the weight of a real-estate slump and fading demand for its exports.
More recently, drought has threatened crops and hit power supplies in key industrial areas, while Covid-19 flare-ups have led authorities to impose sweeping new restrictions on businesses and daily life in cities including Shenzhen and Chengdu. China on Thursday announced stringent new testing requirements for domestic travel ahead of the Mid-Autumn Festival, a long holiday there and in other parts of Asia.
Still, subdued inflation may give policy makers extra comfort as they calibrate policies to stimulate the economy. China has said it aims to keep consumer inflation to 3% or lower this year.
Covid-19 flare-ups have led authorities to impose sweeping new restrictions on businesses and daily life in a number of cities.
While central banks including the Federal Reserve and the European Central Bank have been raising rates aggressively to tame inflation, the People’s Bank of China has been able to cut borrowing costs to support growth.
an economist at Capital Economics, said Friday that he expects the PBOC to cut rates further later this year.
Other economists say the PBOC’s room for maneuver is limited, however, given weak loan demand and pressure on China’s currency as investors pull money out of China to chase higher interest rates in the U.S. and elsewhere. The PBOC said Monday that it would cut a reserve-requirement ratio on deposits of foreign currency, a move aimed at restraining the yuan’s slide.
For the rest of the world, slackening growth and minimal price pressures in China may help ease global inflationary pressures by restraining China’s appetite for commodities and encouraging Chinese factories to resist price increases.
Producer-price inflation, a gauge of factory-gate prices charged by Chinese manufacturers, slowed to 2.3% in August from 4.2% in July, according to the data released Friday. That was the weakest reading since February 2021 and the 10th straight month of slowing price growth. It was also weaker than the 3% expected by surveyed economists.
China’s statistics bureau said the slowdown in producer-price inflation reflected a pullback in global prices for oil and metals, which soared earlier in the year as Russia’s invasion of Ukraine and resulting Western sanctions disrupted global commodity supplies. It also reflected weaker demand for steel used in construction and higher domestic coal production, the statistics bureau said.
The unexpected slowdown in consumer prices was driven primarily by prices for food, as well as falling fuel prices. The government took steps to boost the supply of pork by releasing stocks from its reserves, easing what has been a sharp run-up in pork prices. Prices for fruit and vegetables also rose less than expected.
China’s economy grew just 0.4% year over year in the second quarter, and hopes for a potent revival have collapsed. Economists at Nomura cut their forecast for third-quarter growth to 2.6% from 2.9%, and said they expect the economy to expand just 2.7% for the year as a whole, compared with the 8.1% it achieved in 2021 and the 6.7% growth rate it averaged in the five years leading up to the pandemic.
China’s State Council, or cabinet, announced a flurry of policies earlier this week to help workers and businesses, including subsidies for jobless young people and gig-economy workers.
—Grace Zhu contributed to this article.
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