China's PPI narrows fall in August, analysts see limited rebound

by XIN Yuan

China's producer deflation eased in August as policy support helped stabilize some industrial sectors, though analysts warned the recovery remains fragile.

The producer price index (PPI) fell 2.9% year-on-year, narrowing from July's 3.6% drop and marking the first easing in declines since March, according to data released by the National Bureau of Statistics (NBS) on Wednesday. Prices were flat month-on-month after a 0.2% fall in July. NBS statistician DONG Lijuan said improvement was driven mainly by stronger policy measures, with last year’s lower base also contributing.

She noted efforts to build a unified national market and tighter capacity management have helped make competition more orderly, part of what Beijing calls its "anti-involution" campaign - a push to rein in excessive competition that leads to underpriced markets and weak profits. These policies, together with the steady growth of emerging industries driven by technological and green innovation, have helped lift prices in some sectors.

Prices in coal, metals, solar equipment and new energy vehicles posted smaller declines, trimming the overall drag on PPI by about 0.5 percentage points, the bureau said. At the same time, prices of some consumer goods rose, including a 13% jump for craft items.

Analysts warned that further gains may be limited. FENG Lin at Orient Securities said the boost from "anti-involution" measures is fading, while external headwinds are adding pressure. She said PPI will stay under pressure until the property market stabilizes and consumer confidence recovers, adding that the campaign alone is unlikely to change the trend. She expects the decline to narrow to about –2% in September but sees little chance of turning positive this year.

WU Chaoming of Caitong Securities said last year's sharp declines and domestic stimulus offer some support, but lower oil prices and other external factors will cap any rebound.

On the consumer side, CPI fell 0.4% in August from a year earlier, after being flat in July, as last year's high base and weaker-than-usual food prices weighed on growth.