China's July factory-gate prices miss forecast, deflation concerns persist
Factory-gate prices have been declining for more than two years, and the latest weekend data suggest early-stage efforts to tackle price competition have yet to yield significant results.
Deflationary pressures have prompted Chinese authorities to address overcapacity in key industries. However, the latest round of industrial restructuring appears to be a pared-down version of the sweeping supply-side reforms launched a decade ago that were pivotal in ending a deflationary spiral.
The producer price index (PPI) fell 3.6% year on year in July, National Bureau of Statistics (NBS) said, missing economists' forecast of a 3.3% slide and matching the near two-year low recorded in June.
Extreme weather and global trade uncertainties contributed to price declines in some industries, Dong Lijuan, NBS chief statistician, said in a statement.
However, on a month-on-month basis, PPI shrank 0.2%, improving from June's 0.4% drop.
Despite the headline figures, some analysts see signs of easing deflationary pressure. Xing Zhaopeng, senior China strategist at ANZ, pointed to improvements in month-on-month PPI and year-on-year core CPI.
He expects the current "anti-involution" policy measures - aimed at curbing disorderly competition in sectors like autos -to begin lifting year-on-year PPI from August.
Still, other analysts remain cautious, noting that without demand-side stimulus or reforms to improve people's welfare, the measures may have limited impact on final demand. A prolonged housing downturn and fragile trade relations with the US also continue to weigh on consumer spending and factory activity.
China's consumer price index (CPI) was flat year-on-year in July, compared with a 0.1% rise in June, NBS data showed, beating a Reuters poll forecast of a 0.1% slide.
Core inflation, which excludes volatile food and fuel prices, was 0.8% in July from a year earlier, the highest in 17 months. Food prices fell 1.6%, following a 0.3% decline in June.
Extreme weather added to the economic strain, with sweltering heat gripping much of China's eastern seaboard last month and heavier-than-usual downpours lashing the country with the East Asian monsoon stalling over its north and south.
On a monthly basis, the CPI edged up 0.4%, against a 0.1% drop in June and exceeding forecasts for a 0.3% rise.
"Nonetheless it is still unclear if this is the end of deflation in China," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"The property sector has not stabilised. The economy is still supported more by external demand than domestic consumption. The labour market remains weak," he said.
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