Serrari Group

China’s post-COVID economic recovery hit another roadblock in June, as consumer inflation figures came in lower than expected. The consumer price index (CPI) for June increased by just 0.2% year-on-year, down from May’s 0.3% rise and below the 0.4% predicted by a Reuters poll. This marks the slowest inflation growth in three months, highlighting ongoing struggles in domestic demand.

Persistent Domestic Demand Issues

Despite the government’s efforts to boost spending, fundamental problems like a prolonged housing slump and job insecurity continue to drag on economic activity. “The risk of deflation has not faded in China. Domestic demand remains weak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Declining Food Prices

Food prices, which significantly impact consumer inflation, also saw a noticeable drop. In June, food prices fell by 2.1% year-on-year, worsening from May’s 2% decline. Fresh vegetable prices plummeted by 7.3%, reversing a 2.3% rise in May, while fresh fruit prices decreased by 8.7%, deepening the 6.7% fall from the previous month.

Producer Price Deflation

On the production side, the producer price index (PPI) fell by 0.8% year-on-year in June, a smaller decline than May’s 1.4% drop. Gabriel Ng, assistant economist at Capital Economics, noted, “The deeper declines in factory-gate prices of consumer durables highlight that excess manufacturing capacity is becoming a bigger problem.”

Market Reactions and Policy Responses

Following the subdued inflation data, Chinese shares stayed flat, and the yuan slipped to its lowest point in nearly eight months. Retailers have responded by discounting a variety of goods, from cars to coffee, as they navigate sluggish consumer spending.

In light of the weak Q2 inflation data, Goldman Sachs adjusted its full-year 2024 forecast for headline PPI inflation to -1.6%, down from a previously projected 1.1% decline, and maintained its below-consensus CPI forecast at 0.4%.

Looking Ahead

Government calls for increased consumer spending have met with limited success. The tepid response from consumers and the expectation of reduced borrowing by households and companies highlight the need for more robust policy support beyond current subsidies.

An anticipated overhaul of the consumption tax, potentially to be announced at an upcoming key leadership meeting, could shift focus towards boosting consumer spending rather than expanding manufacturing. Lynn Song, chief economist for Greater China at ING, emphasized the need for further monetary policy easing in the coming months, given the current economic indicators.

As China navigates these economic challenges, the world watches closely, understanding the significant global impact of China’s economic health.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

10th July, 2024

Share this article:
Article and News Disclaimer

The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.

The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.

The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.

Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.

Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.

By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.

www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.

Serrari Group 2023

 

×