Chinese inflation returned to positive territory in June, with a very slight increase of 0.1% compared to June 2024. This figure marks the end of four months marked by deflation.
But fundamentals indicate that real upward pressure on prices remains illusory. Food prices, which comprise a significant portion of China's price index, have continued to decline, falling 0.3% year-over-year.
The PPI, which measures the prices of goods from the producer's perspective, rather than the buyer's, remains largely negative. Falling by 3.6% over the past year, this index has been declining steadily for nearly three years.
Unbalanced offer and demand curves
Weak demand in the domestic market is a significant factor contributing to this. When demand is cautious, supply engages in fierce competition, which limits the rise in prices or even pushes them downwards.
For a long time, it was the export markets that ultimately absorbed China's excess production. However, in the face of U.S. tariffs, rising protectionism, and global trade uncertainty, Chinese producers are finding it increasingly difficult to find markets for their products.
This stagnant inflation and the persistent uncertainty on the world trade front should lead the Central Bank of China to reduce its key rates further.
And if the country's political authorities are careful not to make any new announcements, saving possible new stimuli for later, there is little doubt that they have the means to act. We therefore remain present in China as part of all our portfolios.
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Inflation in China
(Annual change in consumer prices, in %)
Barely positive, Chinese inflation remains low, reflecting the limited appetite of its consumers and fierce competition on the domestic market.