The prices Chinese firms pay factories for their goods fell last month at the fastest pace in three years, official data showed Tuesday, as slackening demand and the bruising US trade war drag on the economy.

The prices Chinese firms pay factories for their goods fell last month at the fastest pace in three years, official data showed Tuesday, as slackening demand and the bruising US trade war drag on the economy. Consumer prices were also broadly subdued and only supported by a surge of almost 50 percent in the price of pork caused by African swine fever that has ravaged the country's pig industry. The producer price index (PPI) -- an important barometer of the industrial sector that measures the cost of goods at the factory gate -- dropped 0.8 percent on-year in August, following a 0.3 percent drop in July. A slowdown in factory gate inflation reflects sluggish demand, while a turn to deflation could dent corporate profits and drag on the world's number two economy, which in turn could lead to a drop in prices globally. While the figure from the National Bureau of Statistics (NBS) marked the second consecutive month of decline, it was slightly better than the 0.9 percent fall forecast in a Bloomberg News survey. Last month was the first time the PPI had fallen into negative territory since August 2016. Petroleum and natural gas mining, and coal and other fuel-processing sectors led the drop, NBS official Shen Yun said in a statement, indicating weakness in manufacturing. However, consumer price index (CPI) -- a gauge of retail inflation -- rose 2.8 percent last month, stabilising from July and beating forecasts. But while meat and egg prices rose as traditional Chinese mid-autumn festival approaches, pork was the key driver, shooting up 46.7 percent on-year owing to a shortage in supply of the staple, Shen said. The country's pig industry has taken a heavy hit from a mass outbreak of African swine fever that has seen huge amounts of the animals culled in recent months, causing China to begin relying on imports. Julian Evans-Pritchard of Capital Economics said that further easing measures are likely as pressure in demand and factory-gate deflation deepens. "Weakening demand dragged producer price inflation further into negative territory last month while surging pork prices kept consumer price inflation elevated," he said in a note. "With demand-side pressures on prices increasingly subdued, we think that further monetary easing is on the horizon." The People's Bank of China on Friday said it would cut the amount of cash lenders must keep in reserve saying it would help release more than $100 billion into the stuttering economy. China also confirmed last week a new round of trade talks will be held in Washington in early October, in an attempt to patch up the trade tensions between the world's two biggest economies.

China's factory prices fall faster as weak demand hits economy

China&#39;s factory price deflation moderated further in July, with prices falling at their slowest pace in two years, taking pressure off the central bank to cut rates as policymakers turn their focus to structural reforms and ballooning credit. 
 
A government-led building spree has increased demand for construction materials, but higher prices are also due in part to speculation in China&#39;s commodities futures market, which has pushed up Shanghai rebar futures up by 50 per cent this year.&nbsp; 
 
The producer price index (PPI) fell 1.7 per cent in July from a year ago, the National Bureau of Statistics said today, smaller than June&#39;s 2.6 per cent decline. Analysts expect producer price inflation to turn positive this year for the first time in more than four years, but the recovery at the factory gate is unlikely to lead to a rebound in private investment, which has fallen to record low growth rates. 
 
&quot;The improvement of PPI should benefit the corporate sector&#39;s profitability, but is unlikely to encourage private sector investment, as the main beneficiaries are heavy industries &ndash; which are dominated by state-owned enterprises,&quot; said ANZ economists in a note. 
 
Non-ferrous metals prices rose 2.8 per cent month-on-month in July, while steel prices increased 0.4 per cent.&nbsp; 
 
Downstream prices, however, remained subdued in July with the consumer price inflation accelerating at its weakest pace in six months as food price gains slowed. 
 
The consumer price index (CPI) rose 1.8 per cent in July from a year earlier, compared with a 1.9 per cent increase in June, and matching this year`s low hit in January. Analysts polled by Reuters had expected a 1.8 per cent gain. 
 
Consumer inflation has remained well below China&#39;s official target of around three&nbsp;per cent in 2016, despite concerns that severe summer flooding, which has disrupted public infrastructure and agricultural production, would increase inflationary pressures. 
 
Food prices continued to moderate, rising 3.3 per cent in July compared with a 4.6 per cent gain in June. Prices of pork rose only 16.1 per cent versus a 30.1 pe rcent increase in June as demand for the Chinese staple meat continued to cool from peaks hit earlier this year. 
 
Non-food inflation, however, rose 1.4 per cent, compared with June&#39;s 1.2 per cent gain.&nbsp; 
 
Healthcare costs rose 4.3 per cent year-on-year in July, up from a 3.8 per cent gain in June, which Merchants Securities economist Yan Ling in Shenzhen said reflects a wider improvement in demand for such products. 
 
Similarly, rises in other price categories showed increasing demand for a wider range of consumer goods and services including horticulture, pet care, and retirement services, Yan said. 
 
Low inflation means Beijing has room to loosen monetary policy if needed, but policymakers appear to have disparate views over how much stimulus is needed to stoke economic growth, if any, and what form it should take. 
 
However, strengthening producer prices mean there is likely less need to ease in the short-term, analysts say. China&#39;s central bank has not adjusted interest rates since October 2015. 
 
&quot;Policymakers are likely to focus their attention on more pressing issues, such as addressing credit risks and structural imbalances,&quot; Julian Evans-Pritchard at Capital Economics said in a note.&nbsp; 
 
(Reuters)

Analysts expect producer price inflation to turn positive this year for the first time in more than four years

China's factory price deflation moderated further in July, with prices falling at their slowest pace in two years, taking pressure off the central bank to cut rates as policymakers turn their focus to structural reforms and ballooning credit. A government-led building spree has increased demand for construction materials, but higher prices are also due in part to speculation in China's commodities futures market, which has pushed up Shanghai rebar futures up by 50 per cent this year. The producer price index (PPI) fell 1.7 per cent in July from a year ago, the National Bureau of Statistics said today, smaller than June's 2.6 per cent decline. Analysts expect producer price inflation to turn positive this year for the first time in more than four years, but the recovery at the factory gate is unlikely to lead to a rebound in private investment, which has fallen to record low growth rates. "The improvement of PPI should benefit the corporate sector's profitability, but is unlikely to encourage private sector investment, as the main beneficiaries are heavy industries – which are dominated by state-owned enterprises," said ANZ economists in a note. Non-ferrous metals prices rose 2.8 per cent month-on-month in July, while steel prices increased 0.4 per cent. Downstream prices, however, remained subdued in July with the consumer price inflation accelerating at its weakest pace in six months as food price gains slowed. The consumer price index (CPI) rose 1.8 per cent in July from a year earlier, compared with a 1.9 per cent increase in June, and matching this year`s low hit in January. Analysts polled by Reuters had expected a 1.8 per cent gain. Consumer inflation has remained well below China's official target of around three per cent in 2016, despite concerns that severe summer flooding, which has disrupted public infrastructure and agricultural production, would increase inflationary pressures. Food prices continued to moderate, rising 3.3 per cent in July compared with a 4.6 per cent gain in June. Prices of pork rose only 16.1 per cent versus a 30.1 pe rcent increase in June as demand for the Chinese staple meat continued to cool from peaks hit earlier this year. Non-food inflation, however, rose 1.4 per cent, compared with June's 1.2 per cent gain. Healthcare costs rose 4.3 per cent year-on-year in July, up from a 3.8 per cent gain in June, which Merchants Securities economist Yan Ling in Shenzhen said reflects a wider improvement in demand for such products. Similarly, rises in other price categories showed increasing demand for a wider range of consumer goods and services including horticulture, pet care, and retirement services, Yan said. Low inflation means Beijing has room to loosen monetary policy if needed, but policymakers appear to have disparate views over how much stimulus is needed to stoke economic growth, if any, and what form it should take. However, strengthening producer prices mean there is likely less need to ease in the short-term, analysts say. China's central bank has not adjusted interest rates since October 2015. "Policymakers are likely to focus their attention on more pressing issues, such as addressing credit risks and structural imbalances," Julian Evans-Pritchard at Capital Economics said in a note. (Reuters)

China's slowing wholesale deflation takes pressure off central bank

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China's factory prices fall faster as weak demand hits economy

China's slowing wholesale deflation takes pressure off central bank