China’s factory deflation has deepened, with producer prices falling at the steepest rate in almost two years, overshadowing a slight increase in consumer prices. The producer price index (PPI) dropped by 3.6 per cent year-on-year, according to the National Bureau of Statistics on Wednesday, marking the 33rd consecutive month of factory deflation. This decline exceeded economists’ expectations and was more pronounced than the 3.3 per cent decrease recorded in May.
In contrast, the consumer price index (CPI) saw an unexpected rise of 0.1 per cent, supported by government subsidies that boosted consumer goods. This slight increase defied economists’ predictions of a 0.1 per cent drop, which had been the trend for the previous three months. Dong Lijuan, chief statistician at the NBS, attributed the producer price declines partly to adverse weather conditions affecting construction and pressuring raw material costs.
The ongoing weak inflation could prompt policymakers to increase stimulus measures to avoid a negative cycle of declining prices, business profits, and wages. This situation has also intensified competition among companies, leading to price wars that regulators are attempting to control. The data indicates continued pressure on the Chinese economy despite some signs of improvement in certain sectors.
