- Jian Chang, chief China economist at Barclays.
China has experienced relatively weak inflation over the last year, due to the drop in global fuel prices and slowing domestic activity. However, as fuel prices have been excluded from the annual equation, inflation is starting to tick higher. China's consumer prices' growth quickened in August, driven by the rising cost of pork, whereas the producer prices fell at their fastest pace in nearly six years, sparking China deflation fears. According to the NBS, the CPI measure rose 2% on annual basis, showing the quickest pace in a year. The gauge also beat the market forecast of a 1.9% rise, following the 1.4% growth in July. Pork prices were the main positive contributor to CPI last month, surging 19.6% year-on-year in August. Moreover, economists say that the underlying inflation in China, excluding pork, remained subdued. Despite the slight pickup, the PBoC is expected to keep easing its monetary policy throughout the year.
Meanwhile, the Producer Price Index, which tracks the change in prices of goods as they leave the factory gate, plunged by 5.9% on an annual basis in August. The gauge missed the estimate of 5.6% after a drop of 5.4%in July. In the meantime, economists believe China's surprise currency devaluation of nearly 2% in mid-August will have little impact on inflation in the near term, in comparison with the effect of sharply lower commodity prices.
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