US trade war drives China’s producer prices into deflation, as pork prices send consumer inflation higher

Producer price index (PPI) fell back into negative territory at minus 0.3 per cent in July compared to a year earlier, down from the flat reading in June

Consumer price index (CPI) rose to 2.8 per cent in July, the highest reading since February 2018, largely due to rising pork prices

Reading Time:2 minutes

China’s consumer inflation remained high in July, due in large part due to the cost of pork, with the African swine fever crisis ravaging the pig population in the world’s biggest consumer of pork. Photo: AFP

Published: 9:39am, 9 Aug 2019Updated: 1:30pm, 9 Aug 2019

The US-China trade war is forcing China’s manufacturers to sell their products at a discount rate, driving prices into deflationary territory in July, data released on Friday showed.

The producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, fell into negative territory at minus 0.3 per cent compared to a year earlier, down from the flat reading in June.

The release showed the pressure being placed on manufacturers in China due to tariffs the United States have placed on Chinese imports, but also the wider malaise in the global economy, which analysts are predicting is veering dangerously close to recession.

PPI last dropped into negative territory in August 2016, having remained in deflationary territory for 54 consecutive months from March 2012.

One major concern is the negative economic impact if price declines become entrenched, and wholesalers delay their purchases in the expectation of lower prices in the future.

China’s consumer inflation, meanwhile, remained high in July, due in large part due to the cost of pork, with the African swine fever crisis ravaging the pig population in the world’s biggest consumer of pork.