China inflation August 2022

Inflation came in at 2.5% in August, down from 2.7% in July. The reading was driven by slowing inflation rates in food and non-food items.

The trend was moderately up, with annual inflation averaging 1.8% in August (July: 1.6%). Consumer prices fell 0.10% from the previous month in August, down from 0.50% recorded in July. The August result was the weakest reading since May. Meanwhile, producer price inflation fell to 2.3% in August, from 4.2% in July, thanks to an increasingly favorable base effect and lower global commodity prices.

On the implications for monetary policy, Ho Woei Chen, economist at United Overseas Bank, said:

“Inflation is relatively mild in China compared to other major economies, which leads to more room for Chinese monetary policy to move away from monetary policy in the United States and Europe. […] Thus, we still see room for further easing in monetary policy, as the lira yoy will fall to 3.55% by the end of Q422 (from 3.65% currently). After a 35bp cut since the beginning of the year, the 5-year rate is still poised to decline further (from 4.30% currently) as the People’s Bank of China (PBoC) provides support to the property market. Having said that, aggressive easing is unlikely as the central bank has repeatedly ruled out flood-like stimulus and stressed the targeted approach.”

Committee members expected consumer inflation to average 2.3% in 2022, 0.1 percentage point higher than last month’s estimate. In 2023, the committee sees inflation at 2.4%.

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