China Sees Eased Factory Deflation in July, But Recovery Challenges Remain

China Sees Eased Factory Deflation in July, But Recovery Challenges Remain Economic Indicators2 hours ago (Aug 10, 2020 12:32AM ET) 1 © Reuters. By Gina Lee – China saw its factory deflation ease in July, as the global economy shows signs of a slow recovery to pre-COVID-19 levels. The National Bureau of Statistics said earlier in the day that July’s consumer price index rose 2.7% and 0.6% year-on-year and month-on-month respectively, whilst the producer price index decreased 2.4% year-on-year. All three readings beat forecasts prepared by as well as June’s figures. Chinese industrial output is on a steady march back towards pre-pandemic levels, with iron ore future prices in the city of Dalian rallying over 50% so far in 2020. Analysts say China's industrial output is steadily returning to levels seen before the pandemic paralyzed huge swathes of the economy, as pent-up demand, government stimulus and surprisingly resilient exports propel a recovery. But some investors warned that cautious consumer spending and the ever-increasing number of COVID-19 cases could stall economic recovery. Heavy rainfall has also led to floods in several parts of the country, hampering production. “The acceleration in China’s consumer price inflation is likely to be short-lived, despite its pickup in July. Food price inflation would probably soften toward year-end, which, together with still-sluggish household demand, could exert downward pressure to the headline CPI. We expect the pace of decline in producer prices to continue to narrow but remain in deflation over the course of the year,” David Qu, Bloomberg’s China Economist, said in a note. Investors will be looking to further data, including industrial production, due to be released on Friday.