Chinese inflation surprises – consumer prices stagnate in July

Deflation concerns in the Asian powerhouse

In other parts of the world, high inflation is a challenge, but in China, persistently low price growth and even occasional declines are causing problems. The decline in food prices intensified in July: after a 0.3 percent decrease in June, they fell by 1.7 percent.

Meanwhile, prices of non-food products rose by 0.3 percent after 0.1 percent the previous month. The price increase of clothing items accelerated from 1.6 percent to 1.7 percent, while the pace of reduction in transportation costs slowed: after a 3.7 percent drop in June, a decrease of 3.1 percent was recorded in July.

Core inflation: 17-month high

Core inflation, which filters out fluctuating food and energy prices, rose by 0.8 percent on an annual basis, which is the highest value in 17 months. In June, this figure was 0.7 percent. According to analysts, this may indicate that the Chinese economy may gradually move out of the deflationary danger zone.

Monthly increase due to weather

Monthly inflation was measured at 0.4 percent, which exceeded the forecast of 0.3 percent and the 0.1 percent figure in June. The monthly price increase was the highest since January, helped by recent extreme weather events, including heavy rains.

The latest data presents a mixed picture: while falling food prices continue to hold back inflation, the recovery in core inflation and the monthly index may suggest that China may be slowly leaving deflation behind.