China’s factory deflation eased for the first time in six months even as consumer prices slipped below zero again, leaving open the question of whether the government will make a lasting difference with its campaign to ease overcapacity across the economy.The producer-price index decreased 2.9% in August from a year earlier, the National Bureau of Statistics said Wednesday, remaining in negative territory for the 35th straight month but narrowing its decline from July’s 3.6% drop.In month-on-month terms, output prices in some upstream sectors, such as the mining and processing of metals, rose for the first time in months.
But deepening food deflation meant the consumer-price index turned negative for the first time in three months, with a drop of 0.4% in August from a year earlier. That was worse than every forecast in a Bloomberg survey of economists, whose median estimate was minus 0.2%.Market reaction to the data was muted. China’s 30-year government bond yield was little changed at around 2.2%, while the yuan was steady against the dollar.China is in its third straight year of deflation for the first time since it started to transition away from central planning in the late 1970s. Nine straight quarters of economy-wide price declines reflect a mismatch between supply and demand, weighing on the balance sheets of companies and pushing down the earnings of both households and the government.A drop in food prices and the effect of a high base from last year were the main cause of the CPI decline in August, according to Dong Lijuan, chief statistician at the NBS.Food costs declined 4.3% year-on-year, with the cost of fresh vegetables plunging over 15% — the most since November 2022.But core CPI, which excludes volatile items such as food and energy, rose to an 18-month high of 0.9%. Dong said its increase shows policies to boost demand and consumption are taking effect.Read Also: US raid disrupts construction at multiple Korean battery plants
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