China’s consumer prices rose less than expected last month, adding to signs policymakers are struggling to get households spending as the annual growth target comes under pressure.

The consumer price index (CPI) increased 0.6% from a year earlier, the National Bureau of Statistics said on Monday. That compares with an increase of 0.5% in July and a median forecast of 0.7% in a Bloomberg survey of economists.

Factory-gate prices remained stuck in deflation, as they have been since late 2022, with the producer price index sliding 1.8% from a year earlier, more than economists’ forecast of a 1.5% drop and July’s decline of 0.8%.

The modest rise in consumer prices was fuelled in part by higher costs of food because of bad weather, said Dong Lijuan, the chief statistician of the National Bureau of Statistics.

“In August, affected by high temperature, rainy weather and other factors, the national CPI rose seasonally from the previous month, and the year-on-year increase continued to expand,” Dong said in a statement accompanying the release.

Weak demand is denting China’s chances of hitting its growth goal of about 5%, as consumers delay purchases and businesses slash wages. 

Former central bank governor Yi Gang has called on policymakers to focus on fighting deflationary pressures “right now”. That marked a rare acknowledgment by a prominent Chinese figure of the nation’s battle with falling prices.

“Overall, we have the problem of weak domestic demand, especially on the consumption and investment side, so that needs proactive fiscal policy and accommodative monetary policy,” Yi said at the Bund Summit in Shanghai last Friday. 

The People’s Bank of China still has space to cut interest rates, according to Zou Lan, the central bank’s monetary policy department head who noted last week that the average reserve requirement ratio for financial institutions is at about 7%. 

Analysts have been forecasting further rate cuts and a reduction in the amount of money lenders must keep in reserve, with September seen as a potential window.

  - Bloomberg