China factory gate inflation dives as trade war rumbles on

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

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 percent on-year in December, compared with a 2.7 percent 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 percent, compared with 2.2 percent in November.

“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.”

Lu said the PPI was expected to turn negative, which would put “further downward pressure on China’s growth”.

The weak figures come as China’s trade war with the US starts to bite and economic growth slows, with data last week showing manufacturing sector contracted in December for the first time in more than two years.

There are hopes for a breakthrough in the trade row, with a US negotiating team leaving Beijing on Wednesday after three days of talks that China said had “laid the foundation” to resolve concerns held by both sides.

© Agence France-Presse