China's producer deflation deepened to its worst level in almost two years in June as the economy grappled with uncertainty over a global trade war and subdued demand at home, piling pressure on policymakers to roll out more support measures.
While consumer prices rose for the first time in five months, the uptick was marginal as a prolonged housing market downturn in the world's second-biggest economy added to headwinds from U.S. President Donald Trump's tariffs on trading partners.
The producer price index fell 3.6% in June from a year earlier, worse than a 3.3% decline in May and the largest drop since July 2023. That compared with forecast of a 3.2% slide in a Reuters poll.
Some export-oriented industries are under pressure in price terms, said Dong Lijuan, NBS statistician.
"The uncertainty in the global trade environment has affected the export expectations of enterprises," Dong said.
China's factory activity shrank for a third month in a row in June, albeit at a slower pace, with employment and new export orders still languishing.
"We expect demand to weaken later this year, as exports slow and the boost from fiscal support diminishes," said Zichun Huang, China economist at Capital Economics.
As subdued domestic demand remains a drag on China's economy, companies have resorted to price discounts to boost sales, prompting the authorities to urge an end to the auto industry's bruising price wars.
Highlighting the tepid consumer market, Chinese e-commerce giants Alibaba (9988.HK) and JD.com (9618.HK) have pledged heavy subsidies over recent months to expand aggressively into fast deliveries.
A diverging trend in consumer prices likely indicates "the effects of the consumer goods trade-in scheme," Huang said, but added that "with this boost likely to fade soon, we expect underlying inflation to decline again later this year."
The consumer price index edged up 0.1% last month from a year earlier, reversing a 0.1% drop in May and above a Reuters poll prediction of an unchanged outcome.
The consumer price uptick was "mainly due to a rebound in industrial consumer goods prices," NBS's Dong said.
On a monthly basis, the CPI was down 0.1% versus a 0.2% decline in May, and in line with economist forecasts of a 0.1% drop.
Core inflation, excluding volatile food and fuel prices, spiked to 0.7% in June from a year earlier, the highest in 14 months.
