China’s Factory Prices Drop at Fastest in Seven Years, NBS Says

China’s factory prices dropped at the fastest rate in over seven years in June, new data revealed on Monday.

Consumer inflation was also at its slowest since 2021, because of a fall in pork prices, the National Bureau of Statistics (NBS) said.

Both measures add to the case for financial policymakers to use more stimulus to revive sluggish demand.

Momentum in China’s post-pandemic economic recovery has slowed from a brisk pickup seen in the first quarter amid faltering manufacturing and weak consumer confidence.

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The producer price index (PPI) fell for a ninth consecutive month, down 5.4% from a year earlier, marking the steepest decline since December 2015.

That compared with a 4.6% drop in the previous month, and a forecast for a 5.0% fall in a Reuters poll of analysts.

The consumer price index (CPI) was unchanged year-on-year, compared with the 0.2% gain seen in May, the NBS said. That was the slowest pace since February 2021 and missed the 0.2% rise expected in the Reuters poll.

Offshore yuan slips further

The weaker-than-expected inflation readings knocked financial markets with the offshore yuan paring earlier gains.

“We expect headline inflation to rise to around 1% by the end of this year. But this would still be soft and won’t constrain the PBOC’s ability to loosen policy further,” economists at Capital Economics said at a research note.

“That said, with credit demand weak, and the currency under pressure, we think the bulk of support will come through fiscal policy. We expect only another 10 basis points of policy rate cuts this year.”

China last month cut policy rates to boost liquidity and vowed to take measures to promote household consumption.

Beijing has set a target for average consumer inflation in 2023 of about 3%. Prices rose 2% year-on-year in 2022.

Core CPI, excluding the volatile prices of food and energy, rose 0.4% year-on-year, slowing from 0.6% in the previous month.