China’s Consumer Prices Creep Out of Deflation in August

China’s Consumer Prices Creep Out of Deflation in August

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(Bloomberg) — China’s deflationary pressures eased slightly in August as consumer prices rose and producer price declines moderated, adding to signs the worst may be over for some parts of the economy.

The consumer price index rose 0.1% last month from a year earlier, the National Bureau of Statistics said Saturday. The increase followed July’s drop of 0.3% — the first decline in more than two years. Core inflation, which strips out volatile food and energy costs, climbed 0.8%.

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Producer prices fell 3%, easing from a decrease of 4.4% in July. Factory-gate deflation has persisted for almost a year.

The data came as China searches for evidence that government stimulus is starting to trickle through the economy and staving off the worsening slowdown. The People’s Bank of China delivered a surprise rate cut last month, while local governments have accelerated the issuance of special bonds to fund infrastructure projects.

Authorities have ramped up easing in recent weeks by cutting down payments in large cities and pushing banks to trim rates on existing mortgages, in a bid to inject life into the ailing property market. They also expanded tax breaks for child and parental care and education to spur consumption. 

Signs some parts of the economy may be bottoming out have emerged in other data released for August. The contraction in manufacturing activity eased while the country’s import decline narrowed. The slump in exports was also not as bad as expected. 

There is still plenty of room for caution. The growth in services activity — a main driver of the post-Covid rebound earlier this year — eased last month, indicating more policy support may be needed to support household spending.

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