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China economy feels the strain as consumer prices soar and producer prices plummet to the brink of deflation
- The consumer price index (CPI) stayed at 2.7 per cent in June, the same as in May, which was itself the highest reading for 15 months
- Producer price index (PPI), the price charged to buyers at the factory gates, fell to the brink of deflation at 0.0 per cent in June
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China’s inflation figures revealed two separate headaches for Beijing on Wednesday, with consumer prices continuing to rise, while the prices producers charged at factory gates in June threatened to dip into deflation.
The consumer price index (CPI) stayed at 2.7 per cent, the same as in May, which was the highest reading for 15 months. This indicates that prices are continuing to rise for Chinese consumers at a time when the economy is battling serious headwinds on a number of different fronts.
Meanwhile, the producer price index (PPI), the price charged to buyers from producers at the factory gates, is teetering on the brink of deflation, reporting at 0.0 per cent in June year on year, down from 0.6 per cent in May and below a Bloomberg poll, the median forecast of which was 0.1 per cent.
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Domestic consumption has been a concern of policymakers in Beijing for some time, and the fact that prices are rising, it will add to this anxiety since it makes it more difficult for consumers to buy more.
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However, the PPI number provides an additional problem, suggesting that the country’s manufacturers are unable to receive the prices they want for their goods. This was reflected in the fact that on Monday it was announced that car sales had risen for the first time since May 2018. However, it came with the caveat that dealers offered discounts of up to 50 per cent to clear inventory before the implementation of new emissions rules.
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