China August inflation slows to 1.3%, weakest since October 2015

Consumer inflation has remained well below China's official target of around 3% in 2016

China's consumer price inflation slowed to its weakest pace in almost a year in August, pulled down by abating food costs, although an encouraging moderation in producer price deflation added to recent evidence of a steadying economy.

The consumer price index rose 1.3 per cent in August from a year earlier, compared with a 1.8 per cent increase in July, the National Bureau of Statistics said on Friday.

That was the slowest pace of inflation since October 2015. Analysts polled by Reuters had expected a 1.7 per cent gain.

Consumer inflation has remained well below China's official target of around three per cent in 2016, despite concerns that severe summer flooding, which has disrupted public infrastructure and agricultural production, would ramp up inflationary pressures.

 

Food prices were up 1.3 per cent in August, compared with a 3.3 per cent year-on-year gain in the previous month. Prices of pork, China's staple meat, rose only 6.4 per cent versus a 16.1 per cent increase in July.

Non-food prices rose 1.4 per cent, unchanged from July, statistics bureau data showed.

The producer price index (PPI) dropped 0.8 per cent in August from a year earlier. Analysts had expected PPI to fall 0.9 per cent.

China factory prices have been falling since March 2012, but a turning point could be on the horizon as the industrial sector improves on the back of a housing recovery, and commodity prices bounce globally.

Indeed, China's imports rose for the first time in nearly two years in August as Chinese companies restocked and wholesale inflation expectations rose. Those signs of stronger domestic demand were accompanied by the same trade data showing exports fell less than expected.

Low inflation means Beijing has room to loosen monetary policy if needed, but policymakers appear to have disparate views over how much stimulus is needed to stoke economic growth, if any, and what form it should take.

However, strengthening producer prices should temper the need to ease in the short-term. China's central bank has not adjusted interest rates since October 2015.