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China factory price inflation slips as trade war pressure grows

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China's pace of factory price growth in June was the same as a year earlier, data from the National Bureau of Statistics (NBS) showed on Wednesday, weaker than market expectations.

[BEIJING] Factory prices in China were unchanged in June from a year ago, data showed on Wednesday, reviving the prospect of deflation as the US trade war hits the crucial manufacturing sector.

At the same time consumer prices managed to meet expectations but the main support came from a surge in food prices owing to the impact of African swine fever on pork supplies and severe weather hitting fresh fruits.

The producer price index (PPI) - an important barometer of the industrial sector that measures the cost of goods at the factory gate - came in at zero in June, down from a 0.6 per cent rise in May, the National Bureau of Statistics said.

The reading is the weakest since August 2016, and fell short of the 0.3 per cent forecast in a Bloomberg News survey.

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Market voices on:

A slowdown in factory gate inflation reflects sluggish demand, while a turn to deflation could dent corporate profits and drag on the world's number two economy, which in turn could lead to a drop in prices globally.

"The tepid inflation signals are an unambiguous sign of current and looming economic problems facing China as a direct result of trade frictions with the US," said Stephen Innes, managing partner at Vanguard Markets.

The reading is the latest indication that the long-running trade war with Washington is denting the factory sector, with figures earlier this month showing activity was contracting as demand for China's goods slows.

Trade discussions between China and the US resumed Tuesday as top negotiators held phone talks seeking to patch up the trade rift hurting the world's top two economies.

Meanwhile, China's cost of food continues to rise, as the consumer price index (CPI) - a gauge of retail inflation - hit 2.7 per cent, the same as last month, which was the highest since February 2018.

Food prices bounced 6.1 per cent in June from last year, led by a 21.1 per cent jump in the cost of pork - which also carried upwards the prices of other meats such as chicken. The cost of fresh fruit soared more than 40 per cent as wet weather in the south hit crops, Bloomberg News reported.

The African swine fever epidemic has wiped out China's pig herds since hitting the country last year.

"The recent collapse in pig supply suggests that upward pressure on food prices is likely to intensify in the coming months," said Julian Evans-Pritchard of Capital Economics in a note.

Chinese officials said last week that new cases of African swine fever have declined and pork production is returning to normal, but reporting by local news outlet Caixin and analysts say the government is downplaying the size of the problem.

AFP