Explainer | China inflation: 4 takeaways as deflation worries grew in July, but is the worst over?

China’s consumer price index (CPI) fell by 0.3 per cent in July, year on year, with a sharp drop in food inflation the main culprit, according to analysts

The producer price index (PPI) fell by 4.4 per cent in July, marking the 10th consecutive month of contraction due to volatile commodity prices

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China’s consumer prices fall for first time since 2021 in July, adding to deflation concerns, but factory-gate contraction narrowed last month, according to data released on Wednesday. Photo: AFP

Andrew Mullen

Published: 12:00am, 10 Aug 2023Updated: 12:53am, 10 Aug 2023

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1. Food prices ‘main culprit’ for CPI fall

After holding steady in June, China’s July consumer prices fell for the first time since February 2021.

The consumer price index (CPI) fell by 0.3 per cent in July from a year earlier, with the reading slightly higher than the expected drop of 0.5 per cent predicted by Chinese financial data provider Wind.

The “main culprit” for the fall was a sharp drop in food inflation caused by base effects, said analysts at Capital Economics.

Within the CPI, food prices fell by 1.7 per cent from a year earlier in July, compared with a rise of 2.3 per cent growth in June, while non-food prices remained unchanged last month, year on year, up from a fall of 0.6 per cent growth in June.

Analysts at Nomura pointed to the high base from last year as the main driver for the negative CPI reading.

2. Volatile commodity prices drive PPI

The producer price index (PPI), which reflects the prices that factories charge wholesalers for products, fell by 4.4 per cent in July, year on year, narrowing from the fall of 5.4 per cent in June.

This was in line with expectations by Wind, marking the 10th consecutive month of contraction.