China’s producer inflation hits near 4-year high in June, squeezing manufacturers

[BEIJING] China’s producer price inflation surged for a fourth straight month in June to its highest since July 2022, indicating that heightened cost pressures squeezed manufacturers whose pricing power remained constrained by weak demand.

The producer price index (PPI) rose 4.1 per cent year-on-year, National Bureau of Statistics (NBS) data showed on Thursday, matching the forecast in a Reuters poll.

The gauge, which logged a 3.9 per cent gain in May, had snapped a years-long deflationary streak in March as energy prices soared in the wake of the Iran war.

Higher prices in coal mining, electrical machinery, electronics and ferrous metals were among the main factors contributing to the rises in producer prices, according to the NBS.

Compared with the previous month, PPI dropped 0.3 per cent in June following a sharp drop in global oil prices in June after the US and Iran agreed on a ceasefire.

China’s economy is developing a two-track dynamic as a global AI-fuelled export surge is lifting advanced manufacturing, while weak household spending, lacklustre investment and the property downturn continue to restrain domestic activity.

Although firmer prices have boosted profits in some upstream and high-tech sectors, manufacturers more reliant on the home market are struggling to pass higher costs on to consumers. This backdrop highlights headwinds policymakers face in their efforts to support the job market and bolster still-soft domestic demand.

Evidence of subdued domestic demand was underscored by China’s auto sales, which fell for a ninth consecutive month in June, prompting carmakers to turn to external markets.

The consumer price index (CPI) climbed 1 per cent from the same month last year, slowing from a 1.2 per cent increase in May and below an expected a 1.1 per cent rise, as price increases for industrial consumer goods eased, including those for gold jewellery and petrol, according to the NBS.

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On a monthly basis, CPI edged down 0.3 per cent, compared with an expected 0.2 per cent drop and a 0.1 per cent dip in May.

Core CPI, which excludes volatile food and energy costs, rose 1 per cent, the slowest since January.

China’s market regulator has renewed its crackdown on “involution-style” competition, pressing ahead with a campaign to rein in cut-throat price wars that have fuelled deflationary pressures.

Excessive competition has led to shrinking corporate profit margins across multiple sectors, including electric vehicles (EVs), solar panels, lithium batteries, steel, cement and food delivery.

Analysts contend that stronger policy intervention is essential to rebalance an economy marked by excess production capacity and weak domestic demand. The export boom has allowed policymakers to postpone more decisive stimulus measures. REUTERS