PPI declines ease in Aug, first since Feb

China's factory-gate price declines eased in August for the first time in six months, signaling improving supply-demand dynamics and a stabilizing economy supported by proactive macroeconomic policies, officials and analysts said on Wednesday.

Looking ahead, analysts expect prices to stage a mild rebound in the coming months as measures to boost domestic demand gradually take effect, while government efforts to rein in intense competition will continue to ease strains from cutthroat pricing and overcapacity in certain sectors.

China's producer price index — which measures factory-gate prices — fell 2.9 percent in August from a year earlier, easing from a 3.6 percent drop in July and marking the first improvement since February, the National Bureau of Statistics said on Wednesday.

Dong Lijuan, an NBS statistician, attributed the narrowing decline to a lower comparison base last year as well as the stronger implementation of proactive macroeconomic policies, which helped some industries see positive pricing changes.

"The continuous improvement in domestic market competition has led to narrowing price declines in related industries. And the construction of a unified national market has advanced, curbing disorderly competition and promoting orderly capacity adjustments in key industries, which in turn has stabilized prices," Dong said.

NBS data showed year-on-year price drops in coal processing, ferrous metal smelting and rolling, coal mining and washing, and photovoltaic equipment and component manufacturing narrowed by 10.3 percentage points, 6 percentage points, 3.2 percentage points and 2.8 percentage points in August, respectively, compared with July.

Wen Bin, chief economist at China Minsheng Bank, attributed the PPI improvement to the government's effective measures to rein in unbridled competition, helping to optimize market order and stabilize prices across industries.

"We expect prices to pick up moderately from low levels as stimulus policies to expand domestic demand continue to take effect, supported by improvements in market order under the push to curb heavy competition," Wen said.

Citing the NBS data, Wen added that China's overall prices extended the recovery trend in August, reflecting the gradual impact of policies aimed at boosting domestic demand, curbing disorderly competition and fostering new growth drivers.

According to the NBS, the country's consumer price index, the main gauge of inflation, fell by 0.4 percent year-on-year in August, while consumer prices were unchanged in July. But the core CPI, which excludes volatile food and energy prices and is deemed a better gauge of the supply-demand relationship, increased 0.9 percent year-on-year in August, up from a 0.8 percent rise in July.

Feng Lin, executive director of the research and development department at Golden Credit Rating International, said the decline was largely due to a higher comparison base last year, while August saw relatively stable prices for vegetables, pork and fruit, leading to a sharper drop in the food CPI, dragging down the overall index.

"Recent pro-consumption measures have helped support prices of big-ticket items such as automobiles and home appliances. We forecast that the CPI will return to positive month-on-month growth in September. On a yearly basis, the inflation is expected to rebound to around 0.1 percent growth, with a mild upward trend projected in the fourth quarter," Feng said.