China Producer Prices Stall, Adding to Industry Woes – Wall Street Journal

Steel bars being cut in Jiangsu province. An easing of production restrictions on raw materials—such as coal and steel—is boosting output and weighing on prices.


china daily/Reuters

BEIJING—Prices charged by China’s producers were flat last month, continuing a slide toward deflation as sluggish demand and falling commodities prices eat into Chinese company profits.

A gauge of factory-gate prices in June was unchanged from a year earlier, official data showed Wednesday—the first stall since September 2016, when an upswing began after a prolonged deflation. That followed May’s 0.6% rise in the producer-price index and was below economists’ expectations.

The number underscores soft demand and adds to signs of downward pressure on economic growth, said Li Wei, an economist at Standard Chartered.

“We need more policy-easing measures to help businesses restore confidence and expand investment, especially given falling industrial profits,” Mr. Li said.

Industrial profits last year were buoyed by strong commodities prices, but this year the government eased production restrictions on raw materials—such as coal and steel—boosting output and weighing on prices. Industrial profits have dropped 2.3% in the first five months, official data showed earlier.

Wuxi Huadong Heavy Machinery

, a manufacturer of container-handling equipment in eastern Jiangsu province, was among the companies that issued a profit warning. Citing sluggish demand, it said Tuesday that its first-half net profit would probably be down 48% to 60% from last year.

Factory-gate prices will probably start falling in the coming months, exerting more pressure industrial profits, already hit by the trade conflict with the U.S., said Liu Xuezhi, an economist at Bank of Communications.

Consumer inflation held steady last month, as slower gains in nonfood prices offset faster increases in food. The June consumer-price index was up 2.7% from a year earlier, matching May’s pace, the statistics bureau said. The core CPI, which excludes volatile energy and food prices, also maintained its May pace, at 1.6%.

Mr. Li of Standard Chartered said the subdued inflation shown in the core CPI and deflation pressure in the PPI create a window for Beijing to guide down the interest rates businesses pay.

The main drivers of consumer inflation—fruit and vegetable prices—probably will weaken shortly because of increased supply, said Mr. Liu, of Bank of Communications. A deadly virus spreading across China’s pig farms has pushed up pork prices, but that alone won’t spur inflation much, he said.

Food prices in June were up 8.3%, accelerating from May’s 7.7%. Combined, the gains in fruit and pork prices boosted the headline index by 1.16 percentage points, the statistics bureau said.

Nonfood prices increased 1.4%, moderating from May’s 1.6%. Lower gasoline and diesel prices together cut the headline CPI reading by about 0.07 percentage point, said Dong Yaxiu, an economist with the statistics bureau.

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