^{People visit the US luxury brand Coach store at a shopping mall in Beijing. | Adek Berry | Afp | Getty Images}

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China’s struggle with deflation intensified in August as consumer prices fell more than expected and wholesale prices continued their prolonged downturn, raising pressure on Beijing to take stronger measures to stimulate demand and stabilize growth.

Consumer prices slide deeper

The consumer price index (CPI) dropped 0.4% in August compared to a year earlier, according to the National Bureau of Statistics. The decline was steeper than economists’ forecast of a 0.2% fall and marked a sharp reversal from earlier signs of stabilization.

Core CPI, which excludes volatile food and energy categories, rose 0.9% year-on-year, its fastest pace since February 2024. Household appliances and clothing were among the categories seeing notable gains, up 4.6% and 1.9% respectively. Services inflation also edged higher to 0.6%, reflecting modest improvements in demand.

Food prices drive headline weakness

Food prices were the largest drag on overall inflation. Pork, a staple in Chinese households, saw significant declines, while fresh vegetables and fruit also posted sharp price drops. Overall food prices fell 4.3% in August, compared to a 2.7% drop in July.

Meanwhile, consumer durable goods deflation deepened, with prices sliding 3.7% year-on-year, worsening from July’s 3.5%. Analysts noted that this level of deflation is more severe than what China experienced during the 2008 global financial crisis.

Producer prices remain in the red

The producer price index (PPI) fell 2.9% from a year ago, matching expectations. While the pace of decline has moderated compared to earlier months, producer deflation remains entrenched, now stretching into its third year.

Economists argue that excess industrial capacity and softening global demand for raw materials and manufactured goods continue to weigh heavily on factory-gate prices. Despite Beijing’s efforts to curb aggressive price-cutting among manufacturers, meaningful recovery in industrial pricing power still appears distant.

Policy response and limits of stimulus

Beijing has been cautious about aggressive monetary easing, focusing instead on targeted measures such as limiting excessive discounting in consumer goods. Several local governments have already suspended trade-in subsidy programs for cars, household appliances, and smartphones after funds ran dry, underscoring the limits of localized support.

China has set its annual inflation target at around 2% for 2025, but the August data suggests the economy remains far from achieving it. Economists warn that temporary upticks in core prices are not enough to signal a sustainable rebound.

External pressures mount

Adding to domestic concerns, China’s exports slowed sharply in August, rising just 4.4% year-on-year — the weakest growth in six months. Economists expect further challenges as the U.S. tightens oversight on rerouting of Chinese goods through third countries, putting additional strain on trade flows.

Outlook

While Beijing continues to emphasize resourcefulness and restraint, economists are calling for more decisive fiscal action to counter deflationary pressures and revive consumer confidence. Without stronger policy support, both domestic demand and export growth risk remaining subdued well into 2025, prolonging China’s battle with deflation.