Concerns about deflation and lack of demand continue to escalate within China's economy, as recent data from the National Bureau of Statistics (NBS) reveals that the nation’s producer price index (PPI) experienced a notable decline of 1.8% year-on-year in August. This downturn marks a stark increase in the rate of decline compared to July, during which the PPI fell by a more modest 0.8%.
The statistics for August further revealed that the PPI decreased by 0.7% compared to the previous month, July, expanding from a lesser 0.2% decrease observed from June to July. From January to August, the average PPI has declined by 1.9% compared to the same timeframe in the previous year. The PPI in China is a crucial metric that reflects the average change in prices for goods and services sold by manufacturers and producers in the wholesale market, effectively capturing the cost of products 'at the factory gate.' In particular, August saw a significant drop in prices within the steel production sector, with a year-on-year decline of 8%, while the food production sector experienced a decline of 1.3%.
The NBS also reported that the prices paid by industrial producers for inputs fell by 2.1% year-on-year in August. These declines in the PPI are largely attributed to insufficient market demand and a downward trend in prices of certain international commodities, as noted by NBS statistician Dong Lijuan.
In response to these economic challenges, former central bank governor of the People's Bank of China, Yi Gang, has emphasized the necessity for Beijing to implement stronger fiscal and monetary policy measures to stimulate the nation's economic growth. He pointed out that 'Overall we (China) are facing issues of weak domestic demand, particularly concerning consumption and investments, thus necessitating proactive fiscal policies and accommodative monetary policies.' In contrast to the PPI figures, the consumer price index (CPI) reported a modest increase of 0.6% year-on-year in August.
The People's Bank of China has established a 3% annual target for the nation's CPI, which indicates that the central bank possesses the capacity for expansionary policies. This insight was reiterated by former Governor Yang, stressing the importance of these measures in the current economic context..