BEIJING—China’s producer prices flatlined in June on lower oil prices and weak global demand, fueling concerns that a slowdown in manufacturing from a bruising trade war will further drag on growth in the world’s second-biggest economy.
The producer price index (PPI) showed no growth in June from a year earlier, the National Bureau of Statistics (NBS) said on July 10. That compared with a 0.6 percent rise in May and a gain of 0.3 percent forecast by economists in a Reuters poll.
The June PPI reading was the lowest since August 2016 when the index last fell year-on-year. Factory gate prices slowed from May as well, falling 0.3 percent.
“The bigger picture is inflation, apart from food inflation, is actually pretty weak and with the economy continuing to cool, I think the return to factory-gate deflation is very likely,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
Tommy Xie, China economist at OCBC Bank in Singapore, also said he saw the risk of produce prices contracting in annual terms as early as next month.
Upstream sectors were particularly weak, with prices for oil and natural gas extraction down 1.8 percent from a year earlier, the NBS data showed. Price gains in the coal mining sector also eased.
China’s factory activity shrank more than expected in June as tariffs and weaker domestic demand hit new orders for goods.
Beijing is fast-tracking more infrastructure projects but prices for some construction materials remain lackluster.
Spot prices for steel rebar in June lingered below the levels of a year earlier and may worsen due to seasonal slackening of construction activity amid high temperatures and rainfall in summer.
Premier Li Keqiang pledged earlier this month to implement financing tools including reserve requirement ratio (RRR) cuts to support small and private firms, adding to expectations for further stimulus measures.
At the same time, however, he and other top policymakers have reiterated that China will not resort to large-scale stimulus.
Evans-Pritchard from Capital Economics said the government could adopt more monetary easing and off-budget fiscal support to bolster the economy.
CPI Still Elevated
The consumer price index (CPI) in June rose 2.7 percent in annual terms, driven by higher food prices. Fruit prices surged 42.7 percent from a year earlier while pork prices rose 21.1 percent.Analysts polled by Reuters expected consumer prices to rise 2.7 percent, matching the pace seen in May.
Some economists said consumer inflation may accelerate due to dwindling pig stocks, but others contended price rises will cool.
“CPI may have peaked in June and could come off steadily in the second half,” said Wang Jun, Beijing-based chief economist at Zhongyuan Bank. “There are deflationary risks but the overall pressure is not big, because deflationary risk is only restricted to manufacturing products.”
Core inflation that strips out volatile food and energy prices was at 1.6 percent in June from a year earlier, the same annual pace as in May.
On a month-on-month basis, CPI fell 0.1 percent in June after no change in May.