BEIJING (Reuters) – China’s factory-gate prices shrank at the sharpest pace in three years in August, falling deeper into deflationary territory and reinforcing the urgency for Beijing to step up economic stimulus as the trade war with the United States intensifies.
Analysts say flagging demand at home and abroad is forcing some Chinese businesses to slash prices to salvage new orders or cut output to contain costs, chipping away at already-lean profits and further dampening business confidence.
Fall - Weakness - Material - Prices
The fall was mainly driven by weakness in raw material prices.
China’s producer price index (PPI) dropped 0.8% from a year earlier in August, widening from a 0.3% decline seen in July and the worst year-on-year contraction since August 2016, National Bureau of Statistics (NBS) data showed on Tuesday.
Analysts - Reuters - Index - %
Analysts polled by Reuters had expected the index to have shrunk by 0.9%.
“With demand-side pressures on prices increasingly subdued, we think that further monetary easing is on the horizon,” Capital Economics said in a note to clients, predicting producer deflation will get worse in coming months.
Share - Prices - Shanghai - Data - Profit
Share prices in Shanghai fell as the data pointed to growing profit pressure.
China’s central bank on Friday cut banks’ reserve requirements for the seventh time since early 2018 to free up more money for lending, and analysts widely expect it to cut some of its key lending rates next week to reduce corporate borrowing costs. Economic growth has cooled to near 30-year lows.
Food - Prices - Barrier - Policy - Easing
Surging food prices will not be a barrier to policy easing, Capital Economics said.
China’s food price index rose...
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