Analysis of China's inflation data. “The data is a clear sign that the Chinese economy continues to deal with deflationary pressures, despite the support provided so far, while the region's recovery progresses in fits and starts,” says Josh Gilbert, market analyst at eToro. “China needs more support, and soon, if it wants this recovery to continue gaining traction,” he concludes.
China's CPI data came in below expectations, with an index of 0.2%, remaining close to zero and in deflation for the fifth consecutive month.
The data is a clear sign that the Chinese economy continues to grapple with deflationary pressures, despite the support provided so far, while the region's recovery progresses in fits and starts. Data for 2024 has been mixed, with some bright spots in the manufacturing sector, but demand remains weak, with the housing crisis a drag, while the weakness of the labor market dents confidence.
Consumption in the world's second largest economy will have to improve for the Chinese economy to maintain a rebound. Today's data is just another sign that, although policymakers are providing support in dribs and drabs, there is still much more to do. The next step could be an easing of monetary policy. We haven't seen it yet because of the pressure it would cause on the yuan, which has remained weak this year.
Investors will receive an update next week when the Communist Party holds a key policy meeting, while GDP data will be released on Monday. The bottom line is that China needs more support, and soon, if it wants this recovery to continue gaining traction.
