China’s economy faces renewed pressure as producer prices plummet 3.6% in June

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A deepening price war has taken a toll on China’s economy, with producer prices plunging 3.6% in June from a year earlier, marking the largest decline in nearly two years. This downturn comes as the economy grapples with tepid consumer demand, raising concerns about the country’s economic trajectory. Meanwhile, the consumer price index showed a glimmer of hope, edging 0.1% higher in June from a year ago, after four consecutive months of declines.

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According to the National Bureau of Statistics, core CPI, stripping out food and energy prices, rose 0.7% from a year ago, the biggest increase in 14 months. The drop in producer prices came worse than the expected 3.2% in a Reuters poll and marked its biggest fall since July 2023

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said, “It is too early to call the end of deflation at this stage [as] the momentum in the property sector is still weakening [and] the ‘anti-involution’ campaign is still at its early phase.”

The PPI has been mired in a multi-year deflationary streak since September 2022. Analysts believe that persistent overcapacity and price wars among manufacturers will likely continue, denting underlying inflation.

Zichun Huang, China economist at Capital Economics, noted that the rebound in consumer prices last month was helped by a consumer goods trade-in scheme offering subsidies for household appliances, electronics, and electric vehicles. However, this boost will likely diminish in the second half of this year, Huang added.

Larry Hu, chief China economist at Macquarie, said, “Without a strong policy stimulus, it’s hard to escape the ongoing deflationary spiral… Policymakers will keep waiting until exports fall sharply.”

China’s export growth has shown some resilience in recent months, with overall exports rising 4.8% in May and 8.1% in April, thanks to a surge in shipments to Southeast Asian nations.

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