China's Factory-Gate Deflation Hits 2-Year Low Amid Trade War Uncertainty

China’s producer deflation worsened in June, hitting a nearly two-year low due to trade war uncertainty and weak domestic demand. Consumer prices rose slightly, but a housing market slump and Trump’s tariffs hindered growth. Factory activity continued to shrink, prompting concerns about weakening demand and the impact of fiscal support.

Export-oriented industries are feeling the pressure, with the producer price index dropping 3.6% in June, the biggest decline since July 2023. China’s factory activity contracted for the third consecutive month, with employment and new export orders still struggling.

The global trade environment’s uncertainty has dampened export expectations, leading to subdued domestic demand and escalating price wars. E-commerce giants Alibaba and JD.com have offered heavy subsidies to boost sales. A rebound in industrial consumer goods prices contributed to a marginal uptick in consumer prices.

Despite a slight increase in consumer prices in June, core inflation reached 0.7%, the highest in 14 months. Economists believe the yuan’s strength and low inflation give the People’s Bank of China room to cut rates later in the year. The next rate cut is expected in the fourth quarter.

Read more at Yahoo Finance: China’s factory-gate deflation worst in 2 years as trade war bites