China’s CPI inflation slows in August on decelerating food inflation, PPI inflation picks up

China’s consumer price index inflation decelerated in year-on-year terms in August, mainly due to lower food price inflation. August inflation dropped to 1.3 percent year-on-year, the lowest since October 2015. It was below market projections and July’s print of 1.8 percent. Food price inflation slowed in August to 1.3 percent year-on-year from July’s 3.3 percent.

The deceleration in food price inflation is mainly because pork prices rose at a much slower rate in the month as compared to the previous months. Since food prices continue to rebound from the mix of seasonal and weather-related disruptions witnessed earlier in 2016, they are expected to exert less upward pressures on headline CPI inflation in the months ahead, said, HSBC Global Research in a research note. This is likely to open up more scope for policy makers to ease if required.

Meanwhile, non-food prices rose 1.4 percent year-on-year, same as in July. Producer prices on the other hand continued to improve, showing stabilization in domestic demand due to more rapid infrastructure investment in recent months. PPI dropped 0.8 percent year-on-year in August, as compared with -1.7 percent in July. In month-on-month terms, producer prices rose 0.2 percent.

Prices in raw materials, mining and processing industries dropped in year-on-year terms by 3.2 percent, 2.3 percent and 0.4 percent respectively.

“We expect fiscal policy to remain expansionary in the coming months, supporting overall activity and prices”, noted HSBC.

Consumer price index inflation is likely to come in at 2 percent for the whole of 2016, below the government’s target of 3 percent, keeping sufficient room for additional monetary easing if required, added HSBC.