China Producer Price Deflation Deepens in June

MT Newswires Live
09 Jul

Mainland China producer prices again declined on year in June, aggravating concerns that Asia's largest economy is struggling to regain growth in the post-pandemic era.

China's producer price index (PPI) declined 3.6% on year in June, following a 3.3% on-year slip in May, reported the National Bureau of Statistics (NBS) on Wednesday.

June marked the 33rd-straight month that the PPI has declined on-year, added the NBS.

In general, China's PPI measures the price of goods at the factory gate, in sales to large distributors or retailers. The PPI is distinct from the consumer price index (CPI), which gauges prices in retail shops, faced by consumers.

China's economy in recent years has struggled against a prolonged decline in property values, which has undercut consumer confidence and demand.

In addition, the nation may have "overcapacity" in its manufacturing sector, perhaps recently aggravated by the application of tariffs on China-made goods by the Trump Administration.

"Policymakers, though, recently shifted attention toward addressing the problem (of too much capacity), with an eye on improving market exit mechanisms, encouraging consolidation and restructuring," said ING Think.

In addition, monetary policy may be brought to bear on soft prices.

Unlike some other central banks, which face inflation near or above inflation targets, the People's Bank of China is now experiencing very low inflation and deflation in some months.

In June, the nation's CPI rose a scant 0.1% on year, reported the NBS on Wednesday, in a separate report.

Also, China's currency has been strengthening, and recently traded near 7.17 yuan to the US dollar, near the highest levels since 2008.

The "relative strengthening of the CNY (yuan) over the past few months and persistently soft inflation give the People's Bank of China room to cut rates further later in the year, if needed," said ING Think.

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