China’s August data dump arrived yesterday and, on the whole, disappointed again.
Inflation in China accelerated slightly from July. China’s consumer price index (CPI) increased by 2.0% yoy in August, up from 1.8% yoy in July, but in-line with consensus estimates.
The uptick in inflation was driven by food prices, as one would expect. Food prices increased by 3.4% yoy, up from 2.4% yoy in July, while non-food prices increased by 1.4% yoy, down from 1.5% yoy in July. Within food prices, vegetables prices increased by 23.8% yoy, up from 8.0% in July. Meat prices, for the time being, continued to fall.
On a month-on-month basis, CPI increased by 0.6%, up from 0.1% in July. Again, the pick-up was driven primarily by food prices, which were up 1.5% on the month, up from –0.1% in July, while non-food prices increased by 0.1%, down slightly from 0.2% increase in July.
Meanwhile, the producer price index (PPI) continues to show increasing deflationary pressure, down by 3.5% compared to a year ago, below the consensus estimate of -3.2% yoy. On a month-on-month basis, however, PPI picked up slightly from –0.8% to –0.5%.
The pick-up of inflation is well expected, driven by food prices, also expected. However, it is also very clear that with the exception of food prices, there is no inflationary pressure for any non-food items, as the non-food inflation shows. The weak PPI adds to the evidence that the risk of deflation remains.
However, the pick-up in CPI inflation will not be welcomed by the market. Although it is unlikely, for the time being at least, for CPI inflation to accelerate above the full-year target of 4%, the rise of CPI inflation could narrow the perceived room for further monetary easing, even though the risk of deflation remains, in our view, a real one.
And on that front, Industrial Production growth slipped to 8.9% yoy in real terms, from 9.2% yoy in July, and below consensus estimate of 9.0% yoy. This reading is the lowest since May 2009.
On a month-on-month and seasonally adjusted basis, however, industrial production has increased by 0.69%, picking up from 0.65% growth in July (July figures were revised downward slightly from 0.66%).
Electricity output growth picked up from 2.1% yoy in July to 2.7% yoy.
Although this is weaker than the consensus, it is in-line with PMIs which suggested that industrial production will likely weaken. Interestingly, growth did pick up somewhat on a month-on-month and seasonally adjusted basis, although the pace of growth remains sluggish. Meanwhile, electricity output growth has stabilised for the time being, albeit at the low level, which might be taken as a good news.
On the whole, this is not a strong report, though there were no nasty surprises.
The fixed asset investment component resumed its slowing in August. Fixed asset investment for January-August increased by 20.2% in nominal term compared to the same period last year, decreased from 20.4% growth for January-July, and worse than expected. Investment from state-owned enterprises increased by 12.9% yoy, increasing slightly from 12.6% yoy growth for the period period.
For August alone, I estimate from the accumulative figures that growth has slowed to 19.4% yoy from 20.6% yoy. On a month-on-month seasonally adjusted basis, growth has slowed further from the revised figure of 1.41% in July to 1.33% in August.
The headline number is worse than expected, which may be surprising for some as there has been a lot of talk about investment plans. The weak number does not bode well for GDP growth.
For Australian readers, there was glimmer of hope in some signs of life in the real estate sector. Real estate investment growth reversed the down trend and ticked higher. In nominal terms, real estate investment for January-August increased by 15.6% compared to the same period last year, up from 15.4% yoy for January-July.
Interestingly, residential housing starts decreased by 11.1 for January-August, but increased to 4.96% for August alone, a decent pick from the big slump in July.
Meanwhile, residential housing sales growth in terms of floor area improved further for January-August, picking up from -7.5% yoy for January-July to –4.8% yoy for January-August. However, sales growth slowed slightly from 14.5% yoy for July to 13.3% yoy.
And finally, at the opposite pole of rebalancing, retail sales increased by 13.2% yoy in nominal terms in August, up slightly from 13.1% yoy in July, and in-line with market consensus of 13.2% yoy.
On a month-on-month and seasonally adjusted basis, retail sales (nominal) increased by 1.28% yoy, picking up slightly from the revised figure of 1.11% growth for July.
However, growth has slowed from 12.2% yoy to 12.1% yoy in real terms, possibly reflecting higher prices.
