China’s consumer prices rose at a slower-than-expected pace in August, while the inflation rate of producers reached its lowest level in 18 months, reflecting an economy affected by weak domestic demand and leaves room for further easing of central bank policy.

The consumer price index (CPI) increased by 2.5% compared to the same month of the previous year, data from the National Statistics Office (ONE) showed on Friday, slower than the 2.7% in July and 2.8% expected on average in a poll of analysts.

The producer price index (PPI) rose 2.3%, the slowest pace since February 2021, and slower than the previous month’s 4.2% and 3.1% in the survey, due to the drop of energy and raw material prices.

“Factory gate inflation is set to continue to fall for the rest of the year on the back of a continued pullback in commodity prices and a higher base of comparison,” Capital Economics analysts Sheana Yue and Zichun Huang said. in an analysis note.

“We believe CPI inflation will remain below the PBOC’s 3% ceiling,” they said, referring to the People’s Bank of China (PBOC).

Official and private data indicate a further loss of momentum in August in the world’s second largest economy, where the weakness of the real estate market, the containment measures of COVID-19 and the shortage of energy have taken a toll on consumption and activity of the factories.

On September 8, there were 1,404 new COVID-19 infections in China, 301 of which were symptomatic, according to the National Health Commission, while Chengdu has extended the lockdown for most of its more than 21 million citizens.

The lower growth in consumer prices was due to the fact that food prices rose 6.1% annually in August, compared to 6.3% in July, and non-food items rose 1.7%, compared to the rise of 1.9% in July.

Core CPI, which excludes volatile food and energy prices, rose 0.8%, matching the previous month.

In month-on-month terms, the CPI fell 0.1% from July, after rising 0.5% in July from June, and against the 0.2% expected in the poll.

The general prices of industrial products maintained a downward trend due to the drop in crude oil and non-ferrous metal prices globally, the NBS said separately.

Producer price inflation in oil and natural gas extraction fell to 35.0% annually in August, from 43.9%.

In monthly terms, the PPI fell 1.2% in August compared to July, when it fell 1.3% compared to June.

Although consumer inflation came close to the government’s target of around 3.0%, it remained lower than that observed in other large economies.

In August, the PBOC stated that China is facing growing structural inflationary pressure and that consumer inflation could exceed 3% in some months of the second half.

Analysts said slowing inflation could lead to further easing of monetary policy.

“Therefore, the People’s Bank of China will not be constrained in further easing monetary policy to support the economy,” Yue and Huang said. “The PBOC had cut most policy rates in August, and we continue to expect more policy rate cuts through the rest of the year.”

China’s cabinet on Thursday announced more measures to stimulate investment, state media reported, expanding a series of measures to bolster an economy devastated by COVID-19.

“We expect easing measures to take the form of quantitative liquidity support tools as well as structural tools such as additional relending fees for priority areas such as manufacturing and green investing,” said Erin Xin, economist at HSBC. .

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