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NRI Latest News: More than expected, consumer prices in China increased, helping to raise hopes about a recovery in domestic demand that has weighed on growth this year.
The consumer price index rose 0.5% from a year earlier, said the National Bureau of Statistics in figures Friday. The forecast was for the rate, which increased by 0.2% last month, to rise by a median of 0.3% in a Bloomberg survey conducted by the publication.
Factory-gate prices extended a deflationary run that began in late 2022, with the PPI falling 0.8% from a year earlier. The economists polled by Bloomberg forecast a decrease of 0.9% after a fall of 0.8% in June.
The world’s No. 2 economy is fighting its longest stretch of deflation since 1999, with weak consumption and investment demand setting off fierce price wars in industry after industry. Broad-based falling prices are undermining nominal gross domestic product growth, eroding corporate profits, and risking consumers becoming even more reluctant to spend if they anticipate a further decline in costs.
Dong Lijuan, chief statistician at the NBS, commented that the improvement in inflation reflected “a continued recovery in consumption demand and the impact of high temperatures and rain in some regions.”.
Prices of vegetables and eggs increased in July, bouncing back from losses the previous month due to weather factors. Gains in consumer prices were driven by education and tourism services, which were up 1.7 percent year-on-year. Clothing and footwear climbed 1.5 percent.
The core CPI, which excludes food and energy prices, two of the most volatile components, rose 0.4% last month, slowing slightly from 0.6% in June. That points to a continuing weakness in broader consumer demand.
The offshore yuan ticked higher after the print, while China’s bond futures dipped. In a week when state banks were squeezing the security with active selling to guide yields higher, the benchmark 10-year yield rose to 2.19%.
Chinese stocks advanced in early trading, with the CSI 300 Index gaining as much as 0.7% and the Hang Seng China Enterprises Index up nearly 2%.
Rejuvenation of domestic demand has become all the more urgent as exports—the rare bright spot in the economy this year—slowed unexpectedly in July, suggesting that global demand is cooling. That puts Beijing’s goal of around 5% growth for the year at risk.
In a meeting recently, China’s ruling Communist Party’s top decision-makers, the Politburo of China, pledged to make boosting consumer spending a greater policy focus. However, in rolling out a 20-step action plan to encourage more spending on services, the government offered little in the way of financial incentives to rev up domestic demand.
