China’s producer prices decline by 3.6% in June, marking the largest decrease in almost two years as deflation intensifies.
Sure! Here’s the rewritten content with the requested changes:
Customers shop at a supermarket in Qingzhou City, East China's Shandong Province, Aug 9, 2023. Costfoto | Nurphoto | Getty Images
China's producer prices plunged 3.6% in June from a year earlier, marking its largest decline in nearly two years, as a deepening price war rippled through an economy already grappling with tepid consumer demand.
The consumer price index edged 0.1% higher in June from a year ago, according to data from the National Bureau of Statistics Wednesday, returning to growth after four consecutive months of declines. Economists had forecast a flat reading compared to the same period a year earlier. Core CPI, stripping out food and energy prices, rose 0.7% from a year ago, the biggest increase in 14 months, according to NBS.
The drop in producer prices came in worse than the expected 3.2% in a Reuters poll and marked its largest fall since July 2023, according to LSEG data. The PPI has been mired in a multi-year deflationary streak since September 2022. Mainland China's CSI 300 index rose 0.19% following the release.
"It is too early to call the end of deflation at this stage as the momentum in the property sector is still weakening and the 'anti-involution' campaign is still in its early phase," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. Involution, known colloquially as "neijuan" in China, refers to the price wars plaguing some consumer sectors.
Last week, Chinese policymakers, in a top economic policy meeting chaired by President Xi Jinping, criticized excessive price competition by Chinese companies to entice consumers and clear excess inventory, as external tariff pressures have threatened the viability of selling to the world's largest consumer market. Beijing pledged to tighten regulations on such aggressive price-cutting that has been unable to influence consumer behavior while impacting businesses' profitability. Profits at industrial firms plunged 9.1% in May from a year earlier, marking the steepest fall since October last year.
"Businesses should be guided to improve product quality and support the orderly phasing out of outdated production capacity," a Chinese state-backed newspaper said, citing the meeting.
The rebound in consumer prices last month was aided by a consumer goods trade-in scheme, which offers subsidies for household appliances, electronics, and electric vehicles, according to Zichun Huang, China economist at Capital Economics. However, that boost will likely diminish in the second half of this year, Huang noted, denting the underlying inflation if the oversupply issue persists.
"With goods supply continuing to outpace demand, persistent overcapacity means price wars among manufacturers are likely to continue," Huang added. "Without a strong policy stimulus, it's hard to escape the ongoing deflationary spiral," said Larry Hu, chief China economist at Macquarie, adding that the momentum in China's exports in recent months has partly reduced Beijing's appetite to stimulate consumption in a meaningful way. "Policymakers will keep waiting until exports fall sharply," Hu added.
China's export growth has shown some resilience in recent months, even as fluctuating trade policies have disrupted global commerce. Chinese overall exports rose 4.8% in May and 8.1% in April, thanks to a surge in shipments to Southeast Asian nations that largely offset a decline in U.S.-bound goods.
