The sustained weakness in inflation in the world’s second-largest economy comes as Beijing has launched a wave of measures to try to boost demand, which has faltered since China emerged from crushing Covid lockdowns last year.
The country’s property market, which accounts for about a quarter of economic activity, remains on life support with large private sector developers suffering a liquidity crunch and buyers reluctant to venture into the market.
Policymakers have cut mortgage rates and relaxed stringent requirements for loans but analysts have described the measures as “piecemeal” and have called for more fiscal stimulus to boost demand.
Goldman Sachs said the stronger CPI number was largely thanks to stronger non-food inflation, including rising crude oil prices.
China’s statistics bureau said while food prices dropped by 1.7 per cent in August, non-food CPI increased by 0.5 per cent after being flat in July.
“For headline CPI, we expect a ‘U-shaped’ recovery,” the analysts at Goldman said, predicting that energy prices would bottom out this year and services inflation should pick up as the government’s economic interventions took effect.
A central problem for Beijing is that the weakness in the domestic economy has coincided with a plunge in the country’s exports, as inflation in the west suppresses consumption.
China’s statistics bureau said consumer goods prices dropped by 0.7 per cent and service prices increased by 1.3 per cent.
Among the items in the producer prices index, building materials and non-metals prices fell 6 per cent while ferrous metal materials fell 5.6 per cent.
China’s disappointing growth and falling exports have sparked foreign investor outflows from its stock markets and contributed to a weakening of the renminbi to lows against the dollar not seen since 2007.
China’s exports dropped 8.8 per cent in August compared with a year ago, according to figures released this week, but the contraction was marginally less severe than analysts expected.
It was also an improvement on July’s 14.5 per cent decline, the worst since the start of the coronavirus pandemic.
© Financial Times