China’s factory gate deflation is the worst trade war in two years
BEIJING (Reuters) – Deflation among Cina producers has grown deep into its worst level in almost two years in June as the economy tackled uncertainty about the world trade war and uncertainty about demand at home, putting pressure on policymakers to deploy more support measures.
Consumer prices rose for the first time in five months, but the rise was modest as the long-term housing market slump in the world’s second-largest economy added to headwinds from tariffs on US President Donald Trump’s trading partners.
The producer price index fell 3.6% from the previous year in June, down from 3.3% in May, down from the largest decline since July 2023. Compared to the 3.2% slide forecast in a Reuters poll.
Some export-oriented industries are under pressure on price conditions, said NBS statistician Don Lifan.
“Uncertainty in the global trade environment has impacted the export expectations of companies,” Don said.
China’s factory activity has shrunk for three consecutive months in June, but it has slowed down, with employment and new export orders still struggling.
“We expect demand to weaken later this year as exports slow and boosts from financial support decrease,” said Zichun Huang of China Economist.
Market response to data was cautious as Trump strengthened his trade war. China’s Shanghai Composite Index rose 0.3% by the midday break, while Hong Kong’s benchmark Hang Seng fell 0.7%.
As suppressed domestic demand remains dragged by China’s economy, companies have resorted to discount prices to promote sales, urging authorities to end the bruise-value war in the automotive industry.
Emphasizing the lukewarm consumer market, Chinese e-commerce giants Alibaba and JD.com have pledged major subsidies to actively expand to speedy delivery over the last few months.
The different trends in consumer prices are likely to indicate “the impact of the consumer goods trade in scheme,” Huang said, but added, “We expect the underlying inflation to decline again later this year, as this boost is likely to decline soon.”
The consumer price index rose 0.1% from last month, turning the decline of 0.1% in May.
The rise in consumer prices was “mainly due to rebound in the prices of industrial consumer goods,” said NBS’ Don.
Each month, CPI fell 0.1% from a 0.2% decrease in May, in line with economist forecasts of a 0.1% decline.
Core inflation, excluding volatile foods and fuel prices, surged to 0.7% in June from a year ago, at its highest in 14 months.