Data spurs hopes for further stimulus plans
China's consumer inflation rose faster than expected in August, while producer prices recorded their biggest monthly drop in nearly six years, reinforcing expectations for more fiscal stimulus to support the economy.
The country's Consumer Price Index (CPI), a main gauge of inflation, rose by 2.0 percent year-on-year in August, the highest level in a year, the National Bureau of Statistics (NBS) announced on Thursday.
The August figure follows a reading of 1.6 percent for the previous month, and is also above the 1.8 percent level forecast by a Reuters poll.
Meanwhile, the Producer Price Index (PPI), which measures inflation at the wholesale level, fell 5.9 percent from a year earlier in August, marking a 42nd consecutive month of decline, the NBS data showed.
The PPI decrease was also bigger than a Reuters forecast of a 5.5 percent decline, following a 5.4 percent fall in July.
On a monthly basis, the PPI contracted 0.8 percent in August, compared with a 0.7 percent decline in the previous month.
Yu Qiumei, a senior NBS statistician, attributed the CPI rise to higher food prices, which rose by 3.7 percent year-on-year in August, up from 2.7 percent in July. Non-food price inflation remained unchanged from the previous month at 1.1 percent year-on-year.
Specifically, pork prices surged 19.6 percent year-on-year, while vegetable prices jumped 15.9 percent, contributing 0.59 percentage points and 0.46 percentage points to the CPI reading, respectively.
"The CPI in August was still at a relatively low level, which at least means that inflation won't be an obstacle to further monetary easing in the second half of this year, if it's needed," Zhang Liqun, a macroeconomics research fellow at the Development Research Center of the State Council, told the Global Times on Thursday.
According to the Bank of Communications Financial Research Center, the CPI may rise further in the near future, but the 2015 inflation figure will be lower than the 3 percent target, allowing room for further monetary easing.
Nevertheless, experts are generally concerned about the deepening PPI deflation.
Zhao Yang, chief China economist at Nomura, wrote in a research note sent to the Global Times on Thursday that the PPI deflation is mainly due to falling commodity prices, a lingering overcapacity problem and sluggish fixed investment.
"Month-on-month deflation has worsened in the third quarter, which is consistent with weaker growth momentum," Zhao noted.
"The PPI indicates that demand is still weak, and measures need to be taken to address this problem," Zhang pointed out, adding that the central government has been rolling out measures to stabilize growth since July.
Major economic indicators released recently have generally been worse than market expectations, adding to concerns over whether China can achieve its 7 percent growth target this year.
China's official Purchasing Managers' Index (PMI) for the manufacturing sector in August slipped to 49.7, the lowest level in three years. The Caixin/Markit PMI fell to 47.3, the lowest level since March 2009. A reading below 50 indicates contraction.
Also in August, exports contracted for a second consecutive month, while imports declined for the 10th consecutive month.
With the real economy remaining weak, the top priority is to stabilize growth and ease deflationary pressure, and the government will mainly use fiscal stimulus to support the economy in the future, Minsheng Securities wrote in a research note Thursday.
On Tuesday, the Ministry of Finance said in a statement that it will engage in more targeted fiscal policies to boost the economy, such as enhanced reform of the tax system and promoting the public-private partnership model to support infrastructure spending.
Zhao also said that fiscal policy is likely to play a larger role in boosting growth in the second half of this year, primarily through greater infrastructure investment.
