China’s producer prices see worst drop in nearly two years

China’s producer prices plunged 3.6% in June from a year earlier, marking its largest decline in nearly two years, as a deepening price war rippled through the economy that’s already grappling with weakening consumer demand.

The consumer price index edged 0.1% higher in June from a year ago, according to data from the National Bureau of Statistics Wednesday, showing early signs of recovery after four consecutive months of declines.

Economists had forecast a flat reading compared to the same period a year earlier, according to a Reuters poll.

The deflation in producer prices came worse than the expected 3.2% drop in a Reuters poll, marking the biggest fall since July 2023, according to LSEG data. The PPI has been mired in a multi-year deflationary streak since September 2022.

“Without a strong policy stimulus, it’s hard to escape the ongoing deflationary spiral,” said Larry Hu, chief China economist at Macquarie, adding that the momentum in China’s exports in recent months has partly pared back Beijing’s desire to stimulate consumption in any meaningful way.

“Policymakers will keep waiting until exports fall sharply,” Hu added.

Last week, Chinese policymakers, in a top economic policy meeting chaired by President Xi Jinping, criticized the excessive price competition by Chinese companies to entice consumers, as the U.S. tariff onslaught has threatened the viability of selling to the world’s largest consumer market.

Beijing pledged to tighten regulations on such aggressive price-cutting that has been unable to influence consumer behavior while biting into businesses’ profitability.

“Businesses should be guided to improve product quality and support the orderly phasing out of outdated production capacity,” a Chinese state-backed newspaper said, citing the meeting.

Profits at industrial firms plunged 9.1% in May from a year earlier, marking the steepest fall since October last year.

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