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China CPI Slows in August, Factory Inflation at 19-Mth Low

·2 min read

By Ambar Warrick

Investing.com-- Chinese consumer and producer price inflation fell in August, data showed on Friday, as a new round of COVID-19 restrictions and a power shortage further weighed on economic activity.

The country’s annual consumer price index fell to 2.5% in August from 2.7% in the prior month, data from the National Bureau of Statistics showed. The reading also missed expectations for a mild rise of 2.8%, and is now further away from the government’s target of 3%.

The decline in inflation comes as China introduced new curbs in economic hubs Shenzhen and Chengdu, amid a fresh outbreak of COVID-19 cases in the two cities. Other areas, such as commodities hub Yiwu, also saw disruptions.

Producer price inflation fared even worse in the country. The annual producer price index shrank to 2.3% in August from 4.2% in the prior month, and was well below expectations of 3.1%. The reading was also at its lowest level since March 2021.

Friday’s readings show that recent stimulus measures by the government are yet to stimulate growth in the country, which faces headwinds from slowing domestic demand and disruptions to factory activity.

Sharp depreciation in the yuan, which is trading at two-year lows, has also done little to perk up inflation. The yuan rose 0.1% on Friday, following a series of strong midpoint fixes by the People’s Bank of China.

While the relaxing of some COVID-19 measures had spurred a brief recovery in the economy over the past two months, this momentum has been largely cut short by new outbreaks of the virus.

Beijing’s refusal to budge on its strict zero-COVID policy is at the heart of China’s economic woes this year, and has severely dented manufacturing activity. Weakness in manufacturing has also spilled over into China's massive services sector, which grew at a slower-than-expected pace in August.

Readings earlier this week showed China’s imports barely registered growth in August, while data last week showed that China’s manufacturing sector contracted for two straight months.

Friday’s dismal inflation readings are likely to invite more stimulus measures by the government. Beijing has already vowed to ramp up spending in the third quarter.

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