China factory gate inflation dives as trade war rumbles on

BEIJING (AFP) – The cost of producing goods in China’s factories slowed sharply in December last year, a sign demand remains weak as the US trade war drags on, while consumer inflation also flagged, official data showed yesterday.

The producer price index (PPI) – an important barometer of the industrial sector that measures the cost of goods at the factory gate – rose 0.9 per cent year-on-year in December, compared with a 2.7 per cent rise the previous month.

The reading marks the lowest growth since September 2016, and fell short of forecasts in a Bloomberg News survey.

A slowdown in factory gate inflation reflects sluggish demand, while a turn to deflation could dent corporate profits.

It “may enter negative territory very soon given the negative sequential growth it already recorded”, Goldman Sachs economists forecast.

“This disinflation is reflected already in the industrial profit data, which entered negative territory,” they wrote in a research note.

The consumer price index (CPI) – a key measure of retail inflation – rose 1.9 per cent, compared with 2.2 per cent in November last year.

“Both readings fell short of market forecasts,” said Nomura economist Lu Ting. “Rapidly falling inflation, especially factory-gate PPI inflation, is further evidence that China’s economy is slowing at a worrying pace. Slumping PPI inflation suggests corporate earnings will almost surely continue to fall in coming months.”