China's deflation pressures ease, more steps likely to spur demand

Beijing: China's consumer prices returned to positive territory in August while factory-gate price declines slowed, data showed on Saturday, as deflation pressures ease amid signs of stabilisation in the economy.

But analysts say more policy support is needed to shore up consumer demand in the world's second-biggest economy, with a labour market recovery slowing and household income expectations uncertain.

The consumer price index (CPI) rose 0.1% in August from a year earlier, the National Bureau of Statistics said, slower than the median estimate for a 0.2% increase in a Reuters poll. CPI fell 0.3% in July.


Core inflation, which excludes food and fuel prices, was unchanged at 0.8% in August.

The producer price index (PPI) fell 3.0% from a year earlier, in line with expectations, after a drop of 4.4% in July. The drop in factory prices was the smallest in five months.

"There is a bit of improvement in the inflation profile. In the meantime, the PPI deflation appears to be narrowing, pointing to a slow and moderate restoring process," said Zhou Hao, chief economist at Guotai Junan International.

"In general the inflation (rate) still points to weak demand and requires more policy support for the foreseeable future."

Food prices fell 1.7% on year while non-food costs rose 0.5% - led by rising costs linked to tourism, the bureau said.

Recent floods have damaged corn and rice crops in China's key northern grain-producing belt, sparking domestic food inflation fears as consumers worldwide face tightening food supplies caused by the war in Ukraine.

China's central bank could continue to cut interest rates and bank reserve requirement ratios, said Bruce Pang, chief economist at Jones Lang Lasalle.