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China Consumer Inflation Unchanged Amid Anti-Price War Campaign

(Bloomberg) -- China’s consumer prices held steady in July as deflationary pressures eased on the back of a government pledge to contain excessive competition.

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The consumer price index was unchanged from a year earlier, the National Bureau of Statistics said Saturday. The median estimate of economists surveyed by Bloomberg was for a 0.1% decline. Inflation ended a four-month falling streak in June, turning positive.

Factory deflation persisted into a 34th month, with the producer price index falling 3.6%, matching June’s decline.

Price wars are intensifying deflationary pressures in China, where consumer demand remains fragile. The government has launched campaign to curb the cutthroat competition among businesses that’s eroded profits and driven down wages the world’s second-biggest economy.

China’s top leadership vowed at its monthly gathering in late July to ramp up management of overcapacity in key industries but faces a challenge in reflating the economy, and more aggressive efforts to boost domestic demand may be necessary.

The state’s campaign also seems to have had little effect on people’s perceptions, with the price expectation index, based on a central bank survey of households, in decline since late last year.

A broad measure of prices across the economy, known as the GDP deflator, has declined for nine straight quarters, its longest streak in decades.

Resilient demand for Chinese goods overseas has helped the economy hold up surprisingly well in the face of US tariffs, but industrial profits are deteriorating as companies struggle to pass on rising costs to consumers, given weak spending power and poor sentiment.

Fierce rivalry at home, fueled by excess industrial capacity, has driven exporters to slash prices to boost sales, drawing sharp criticism from abroad and deepening trade frictions.

The Communist Party’s decision-making Politburo, led by President Xi Jinping, listed the goal of addressing “disorderly competition” among companies as one of its top priorities when it set the economic policy agenda for the rest of the year at its meeting last month.

What Bloomberg Economics Says...

“The big picture would remain the same — there is still a long way to go before the economy escapes deflationary pressures. Policymakers are recognizing that “fixing disorderly competition” is key to addressing the roots of deflation — and more steps may follow.”

— Eric Zhu. For full analysis, click here

Xi issued a call in July to “break involution,” using a term for a destructive state of intense competition sparked by excess capacity that forces people to overwork despite diminishing returns. The president has also questioned the need for local governments to crowd into the same emerging industries, such artificial intelligence and vehicles powered by alternative-energy sources.

--With assistance from Tian Ying and Bei Hu.