Monday, 16 December, 2019

Trade war: China factory price inflation slips as trade war pressure grows

Reuters Reuters
Ginger Lawrence | 10 July, 2019, 17:41

China says June food CPI +8.3 pct from a year ago; Non-Food CPI China June PPI 0.0 pct from a year ago (Reuters Poll +0.3 pct).

Transportation-related fuel price inflation dropped significantly, extending the 1.4 percent drop in May to tumble 6.5 percent last month, mainly on a continued moderation of oil price inflation (Brent oil price inflation fell 13.6 percent in June comparing with the 7.6 percent decline in May), according to Nomura.

Wednesday's data also showed that China's producer price index, which measures costs for goods at the factory gate, rose 0.3 percent year on year in the first half of 2019.

The rate of growth was the slowest since August 2016 when the PPI last dipped into negative territory.

Although Beijing and Washington reached another truce in their trade war last month, economists expect continuing pressure on the Chinese economy as manufacturers shift more production overseas to avoid US tariffs on China-made goods.

The average price of pork rose 21.1% year-on-year last month amid the fallout from the country's ongoing African swine fever outbreak.

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At 07:17 GMT, the yuan was quoted at 6.8838 per USA dollar, 0.06% firmer than the previous close of 6.888.

Some economists said consumer inflation may accelerate due to dwindling pig stocks, but others contended price rises will cool.

Nomura maintained their forecast for a rise in headline CPI inflation this year to 2.5 percent from 2.1 percent in 2018 and believed it could even breach 3 percent in some months.

Core inflation that strips out volatile food and energy prices was at 1.6% in June from a year earlier, the same annual pace as in May.

Commenting on Wednesday's figures, Julian Evans-Pritchard at Capital Economics said the stabilisation in consumer prices was likely to prove short-lived as the oil price drop eased and on the back of the recent "collapse" in pork supply. At closing bell, the benchmark Shanghai Composite Index fell 0.44%, or 12.93 points, to 2,915.30.