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Gulf Press > Business > Forex > China: Declining demand confirmed by weak price data – UOB Group
Forex

China: Declining demand confirmed by weak price data – UOB Group

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Last updated: 2024/09/09 at 11:05 AM
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In August, China’s Consumer Price Index (CPI) increased to 0.6% year-on-year, falling short of market expectations of 0.7%. The rise in food inflation was the main driver behind this increase, outweighing the decrease in non-food inflation, according to UOB Group economist Ho Woei Chen. This rebound in food prices marked the first time they had turned positive since July 2023.

Despite the increase in headline CPI, core inflation and services inflation continued to decline in August, reflecting ongoing weak demand. Additionally, Producer Price Index (PPI) deflation widened significantly during the same period. As a result of this trend, UOB Group adjusted their forecast for headline CPI to 0.5% from 0.3% for 2024, while revising their full-year forecast for PPI to -2.0% from -1.3%. These adjustments were made in light of the persisting weak demand in the market.

The combination of weaker domestic price pressure and monetary policy easing in developed economies has prompted further easing measures by the People’s Bank of China (PBOC). The focus going forward will likely be on a potential reduction in banks’ reserve requirement ratio (RRR) in order to release long-term liquidity and stimulate credit expansion. This move is aimed at addressing the sharp slowdown in credit growth observed this year, which has been attributed to weakened investment and mortgage demand in the market.

Looking ahead, it is anticipated that the PBOC will continue to implement measures to support economic growth and stabilize prices. The outlook for inflation remains uncertain, as the impact of global economic conditions and domestic factors continues to influence China’s CPI and PPI. As such, further monetary policy adjustments may be necessary to address any potential fluctuations in prices and demand in the market.

Overall, the latest data on China’s CPI and PPI reflect a nuanced economic landscape, characterized by a mixture of positive and negative trends. While the rebound in food prices has helped drive headline CPI higher, other factors such as decreasing core inflation and widening PPI deflation point to ongoing challenges in the market. By closely monitoring these indicators and implementing appropriate policy responses, Chinese authorities aim to navigate the complexities of the current economic environment and support sustainable growth in the long term.

In conclusion, the recent developments in China’s CPI and PPI underscore the importance of a proactive and flexible policy approach to address evolving economic challenges. By staying vigilant and responsive to changing market conditions, Chinese policymakers can better position the economy for stability and growth in the face of internal and external pressures. As the country continues to navigate the post-pandemic recovery phase, ongoing monitoring of inflationary trends and targeted policy interventions will be crucial in shaping the trajectory of China’s economic performance in the months and years ahead.

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News Room September 9, 2024
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