China’s July factory-gate prices miss forecast, deflation concerns persist

Weak demand and persistent trade uncertainty are fueling deflationary concerns in China, as July’s factory-gate prices fell more than expected.

Here’s a closer look:

Producer Price Index (PPI) decline: China’s PPI dropped 3.6% year-on-year in July, matching the low seen in June and exceeding economists’ forecasts of a 3.3% slide. This marks over two years of declining factory-gate prices, indicating persistent deflationary pressures.

Causes and Government Response: Sluggish domestic demand, global trade uncertainties, and extreme weather are cited as contributors to the decline. Chinese authorities are addressing overcapacity in key industries to combat deflation, though the effectiveness of recent efforts is still uncertain.

Consumer Prices: China’s consumer price index (CPI) was flat year-on-year in July, a slight improvement from June. While month-on-month CPI saw an increase, economists are still debating if this signals the end of deflation.

Outlook: Analysts are cautious, suggesting that without further stimulus or reforms to boost household welfare, current measures may have limited impact. A prolonged housing downturn and fragile trade relations also continue to affect consumer spending and factory activity.