China's August inflation inched up, widening its month-over-month gain. But most analysts say it is hard to see this as a sign of a recovery in domestic demand. The rise was largely driven by higher global commodity prices and growing demand in high-tech industries, while household consumption remains sluggish. Chinese policymakers are moving to revive domestic demand not only by boosting consumers' purchasing power, but also by addressing product supply, consumption spaces, and consumer confidence.
On the 9th, according to China's National Bureau of Statistics, the consumer price index (CPI) for August rose 0.8% from a year earlier. That matched the market forecast compiled by Bloomberg and widened from July's 0.5%. The National Bureau of Statistics cited ▲ global commodity price volatility ▲ seasonal increases in food prices ▲ growing demand in high-tech industries as reasons for the rebound. A base effect also appears to have played a role, as last August's CPI fell 0.4%.
Allan Von Mehren, China chief economist at Denmark's Danske Bank, said, "Until we see clear signs of a recovery in China's property market, household consumer sentiment will likely remain low and the pace of private consumption growth will be weak." Danske Bank cut its annual CPI growth forecast to 0.8% from 1%.
Over the same period, the producer price index (PPI) rose 3.8%, slightly topping the market estimate of 3.6%. CNBC said, "A large part of the PPI increase stems from last year's base effect and higher commodity prices, not from genuinely stronger household demand," adding, "With the effects of consumption-boosting measures fading, household spending remains weak."
◇ Authorities move beyond "opening wallets" to improve consumer goods, spaces, and the environment
Chinese policymakers have recently rolled out a series of phased measures to revive domestic consumption. They are expanding policy tools in a targeted way, going beyond boosting consumers' purchasing power to address product supply, consumption infrastructure, and consumer confidence.
First, China is continuing its yijiuhuaxin (replacing old with new) policy for consumer goods such as cars, home appliances, and mobile phones, alongside expanding consumer loans and interest support. To increase products and services that consumers would actually spend on, it is expanding the supply of high-quality goods while also fostering new demand such as smart and eco-friendly consumption. The focus is shifting from directly lowering expense burdens to spur spending to increasing the very range of products worth buying.
It is also working to stimulate consumption in so-called lower-tier markets, such as county-level cities and rural areas. Authorities are renovating aging malls and commercial facilities, nurturing local business districts, and expanding consumption spaces and opportunities through shopping and tourism festivals.
Efforts are being made to improve the environment so that consumers can trust the market and products when purchasing. The State Administration for Market Regulation announced on the 8th that it will begin fostering 'reliable consumption units and clusters' nationwide. To encourage participation, trustworthy businesses will be offered reduced administrative inspection burdens, expanded credit limits, lower interest rates, fee reductions, and promotional support.
Reuters said, "As consumption support measures have yet to deliver a broad-based economic recovery, policymakers are stepping up efforts to bolster consumer sentiment," adding, "The Ministry of Finance of China signaled last month that it could provide additional fiscal support depending on economic conditions."