China's Consumer Prices Fall for the First Time in Over Two Years

China's consumer prices experienced a notable decline in July, marking the first decrease in over two years, according to official data released on Wednesday. While the country's factory-gate price index also decreased, the rate was slower compared to previous months.

Consumer-Price Index Drop

In July, China's consumer-price index dropped by 0.3% compared to the same period last year. This decline follows a period of stagnation in June when prices remained flat. Economists surveyed by The Wall Street Journal had expected a larger fall of 0.4%, making this outcome slightly better than predicted.

Factors Contributing to the Decline

The drop in consumer prices was primarily driven by a decrease in food prices, which fell by 1.7% year-on-year in July. This is a significant shift from the 2.3% increase observed in June. Notably, vegetable prices also decreased by 1.5% in July, contrasting with the substantial growth of 10.8% recorded in the previous month. Additionally, pork prices experienced a substantial decline of 26% in July, marking a significant widening from the 7.2% decrease seen in June.

In contrast, non-food prices remained stable in July, with no change compared to the previous year. This follows a slight drop of 0.6% in June.

Month-on-Month Analysis

Looking at monthly data, China's consumer-price index increased by 0.2% in July, effectively halting a five-month period of consecutive decreases. This shows a positive turnaround compared to June when prices declined by 0.2%.

Factory-Gate Price Index

Alongside the decline in consumer prices, China's factory-gate prices also experienced a decrease, but at a slower rate. In July, prices dropped by 4.4% compared to the same period last year, narrowing the decline from June's 5.4%. Economists polled by The Wall Street Journal had anticipated a slightly larger fall of 4.1%.

Monthly Factory-Gate Price Index

On a monthly basis, China's producer price index (PPI) declined by 0.2% in July, portraying a more optimistic scenario compared to June when prices dropped by 0.8%, as reported by the statistics bureau.