China's headline producer price index fell 1.8 percent on the year in August, weakening sharply from a fall of 0.8 percent in July. Headline PPI inflation has been in negative territory since late 2022 and this is the biggest year-over-year decline in the index in four months. The index fell 0.7 percent on the month after a previous decline of 0.2 percent. Consumer price data also published today showed a small increase in headline inflation.

Today's data were below the consensus forecast for a year-over-year fall of 1.8 percent in the PPI. The China RPI and RPI-P fell from minus 29 to minus 36 and rose from minus 42 to minus 30 respectively, indicating that recent Chinese data in sum are still coming in well below consensus forecasts.

Producer prices have been in long annual contraction though July's minus 0.8 percent headline was the smallest year-over-year decline since January 2023. August's consensus is minus 1.5 percent.

The Producer Price Index (PPI) measures the change in the price of goods purchased and sold by producers. The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time. The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

It is a leading indicator of consumer inflation - when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

The PPI measures the industrial products price changes for the domestic market. Unlike most other countries, China only produces a comparison with the same month in the previous year but not with the previous month. The PPI covers all manufacturing activities. The prices include excise taxes but exclude VAT. The industry breakdown for the PPI follows China's Industrial Classification of the National Economy. The data include a 38 industry breakdown and are not adjusted for seasonality. They are available by the 20th of the month following the reference month and are published in the daily NBS paper"China Information".

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses. Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.