China’s Producer Prices Prices Drop Into Deflation

By Glenn Dyer | More Articles by Glenn Dyer

Keep a close eye on more data on the health of the Chinese economy this week after deflation reappeared in the country’s huge industrial sector for the first time in three years.

The major data for July – industrial production, retail sales, urban investment, especially in real state and construction – will be issued midweek while car sales for July are out later today – and they are expected to be down for another month.

The re-appearance of deflation in China in July after being dormant since 2016 is a new worry.

China’s producer prices fell for the first time in three years last month, according to data issued in Beijing on Friday.

Thanks to weak demand at home (reflected in falling commodity imports in July) and Trump’s continuing trade assault, Chinese manufacturers are finding it hard to grow sales, so are resorting to price cuts to protect deals and market share.

The National Bureau of Statistics (NBS) said on Friday that China’s producer price index (PPI) fell 0.3% last month from July 2018

That compared with zero growth seen in June and a 0.1% drop expected in market forecasts.

It was the first contraction on an annual basis since August 2016, though the index has now dropped for the last two months in a row.

The NBS said the industries which saw the steepest factory price declines included oil and gas extraction, and paper and paper product manufacturing, with falls of 8.3% and 7.1% from a year earlier, respectively. Energy processing firms such as oil refiners and chemical producers also saw big price declines.

It was a different story with consumer price inflation which hit a 17-month high in July, mainly driven by the continuing rise in prices of pork and other proteins due to a prolonged outbreak of African swine fever, and dry weather in fruit-growing regions.

The consumer price index (CPI) rose 2.8% from July 2018, slightly higher than expectations and June.

Food inflation accelerated at the fastest pace since January 2012 with the food price index rose 9.1% on the year, from an 8.3%jump in June. Fruit prices surged 39.1% and pork prices jumped 18.2%.

Month-on-month basis, CPI grew 0.4% in July after dipping 0.1% in June.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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