Published: Wed, July 10, 2019
Markets | By Otis Pena

China factory price inflation falls as trade war pressure grows

China factory price inflation falls as trade war pressure grows

BEIJING, July 10 ― Factory prices in China were unchanged in June from a year ago, data showed today, reviving the prospect of deflation as the USA trade war hits the crucial manufacturing sector.

On the other hand, June's consumer price growth in annual terms matched a 15-month high seen in May as supply shortages triggered by an African swine fever outbreak and extreme weather conditions continued to push up pork and fruit prices.

Analysts polled by Reuters had expected producer price inflation to slow to 0.3 per cent in June.

Market losses were, however, capped after official data released on Wednesday showed China's consumer price index rising 2.7% on year in June, in line with market expectations.

China's producer price index, which measures costs for goods at the factory gate, rose 0.3 percent year on year in the first half of 2019, the National Bureau of Statistics (NBS) said Wednesday.

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The rate of growth was the slowest since August 2016 when the PPI last dipped into negative territory. Price gains in the coal mining sector also eased. At 0755 GMT, the yuan was quoted at 6.8796 per U.S. dollar, 0.04% firmer than the previous close of 6.8827.

"With pig stocks still tumbling we think increases in consumer prices will start to accelerate again before long", economists with research firm Capital Economics said in a note.

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.

Nomura maintained their forecast for a rise in headline CPI inflation this year to 2.5 percent from 2.1 percent in 2018 and believed it could even breach 3 percent in some months. Global markets retreated from pricing a 50 basis point cut from the US Federal Reserve this month after stronger-than-expected jobs data from the United States last week.

Food prices grew 8.3 percent year on year last month, up from 7.7 percent in May.

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