While China’s producer price index (PPI) fell to its 3 year low, the consumer price index (CPI) rose by 2.8% in July.
On Friday, in a development that underscores the effectiveness of Washington’s trade action against Beijing, China’s factory gate prices shrank for the first time in three years in July. China will have to boost its fiscal stimulus measures to get its economy chugging.
The development comes midst an intensifying trade war with the United States.
Demand for Chinese goods, in the domestic market as well as those abroad, have slowed down. As a result Chinese manufacturers are forced to slash prices to retain market share; this has led to lower profit margins and has discouraged fresh investment which are critical to get its economy back on track.
A fall in the prices of raw materials, including iron ore and crude oil are also contributing to China’s headwinds.
According to data from the National Bureau of Statistics (NBS), in July China’s producer price index (PPI) has fallen by 0.3% from a year earlier; in June China’s PPI saw a zero growth rate. This was the first contraction on an annual basis since August 2016; the index has continued to drop for the last two months.
“Weak demand has started to impact expectations on the production side,” said Zou Qiang, an analyst at Everbright Pramerica Fund Management. He went on to add, the price contraction is likely to worsen in the coming months due to stricter curbs on the property sector with regulators trying to rein in debt risks.
Chinese industries have witnessed the steepest decline in factory prices, including those of crude oil, gas extraction, as well as 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, have also witnessed an extended fall in prices.
In July, the prices for major building materials such as steel reinforcing bars were weak since high temperatures and rain led to delays in construction projects.
Cost of Living jumps
China’s consumer inflation has also peaked to its 17-month high in July. This was mainly driven by a jump 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 a year earlier.
Food inflation also accelerated at its fastest pace since January 2012. The food price index rose by 9.1% on year, up from 8.3% in June. While pork prices jumped by 18.2% prices of fruits surged by 39.1%.
On a month-on-month basis, CPI grew by 0.4% in July, up from 0.1% in June.