Deflationary Pressure Mounts in China... June Producer Prices See Largest Drop in 23 Months
PPI Falls by 3.6%
CPI Sees Slight Increase for the First Time in Five Months
Amid ongoing concerns about deflation (falling prices) in the Chinese economy, the Consumer Price Index (CPI) rose in June for the first time in five months. However, the Producer Price Index (PPI) recorded its largest decline in 23 months.
According to the National Bureau of Statistics of China on July 9 (local time), the CPI for June increased by 0.1% year-on-year. This figure is higher than the market forecast of -0.1% compiled by Bloomberg, with some analysts attributing the rise to government subsidies aimed at boosting consumption. Looking at the CPI trend this year, the rate rose by 0.5% in January, when the announcement of domestic demand stimulus policies coincided with the Lunar New Year, but then fell by 0.7% in February, followed by a 0.1% decline for three consecutive months from March to May.
In June, the PPI fell by 3.6% year-on-year, continuing a 33-month streak of declines amid ongoing uncertainty from the US-China trade conflict. This drop is steeper than both May's figure (-3.3%) and the market forecast of -3.2% compiled by Bloomberg, marking the largest decline since July 2023 (-4.4%). Dong Lijuan, chief statistician at the National Bureau of Statistics, explained that fluctuations in the construction sector and raw material prices contributed to the PPI decline.
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Given that inflation (rising prices) remains weak under these circumstances, there are growing expectations that the Chinese government will have no choice but to implement stimulus measures to avoid a downward spiral of falling prices, corporate profits, and wages. In reality, price competition among companies has intensified amid deflation, and such practices were criticized at a recent meeting presided over by President Xi Jinping. However, some in the market believe that overproduction and price competition are likely to continue for the time being, as local governments are trying to maintain production to prevent a rise in unemployment.
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