9/11/2014
By Jennifer Coombs

During the month of August, consumer inflation (or CPI) eased to a four-month low in China, while factory prices continued to be in decline for the 30^th consecutive month. Both of these components ought to add room for government intervention as a stimulus is becoming more likely to support their economy during a national property slump. The consumer price index increased 2.0% in August over last year which was shy of economists’ expectation of a 2.2% increase and a 2.3% year-over-year increase in July.

While the inflation changes remain positive over last year, the producer price index (PPI) fell 1.2% over last year, compared with projections for a 1.1% decline.

Ultimately, we view today’s data as just one more sign of weakness in Chinese domestic demand following earlier reports this week about declining imports and a slowdown in money-supply expansion. Premier Li Keqiang said yesterday that China won’t end up landing hard and that the government has confidence in achieving key development goals for 2014, with a growth target of about 7.5%. It’s clear that an economic stimulus will still be necessary in China if they hope to achieve this growth target. However, the more disappointing aspect is that the target won’t be met without interference from the government.

Jennifer Coombs
Wall Street Strategies

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