Customers were shopping at a supermarket in Qingzhou City, located in East China’s Shandong Province, on August 9, 2023. Recent economic data reveals that China’s producer prices have experienced a significant drop, plunging 3.6% in June compared to the same month last year. This marks the steepest decline in nearly two years and highlights the deepening price war within an economy that is already struggling with weak consumer demand.
The National Bureau of Statistics reported a slight increase in the consumer price index, which rose by 0.1% in June from the previous year, ending a four-month streak of declines. This uptick was unexpected, as economists had predicted stagnation according to a Reuters poll. Excluding food and energy prices, the core consumer price index rose by 0.7%, the largest increase in 14 months.
However, the drop in producer prices was sharper than the anticipated 3.2% fall, indicating persistent deflationary pressures that have gripped the Producer Price Index since September 2022. Following the data release, mainland China’s CSI 300 index saw a modest increase of 0.19%.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, cautioned against declaring an end to deflation. He noted that the property sector remains weak and that the “anti-involution” campaign-referring to intense price competition within certain consumer sectors-is still in its early stages. Policymakers have recently criticized this fierce price competition at a high-level economic meeting led by President Xi Jinping, arguing that it compromises business profitability and fails to significantly stimulate consumer spending.
In response to these challenges, Beijing has vowed to implement stricter regulations on aggressive pricing tactics that have not effectively swayed consumer behavior. Profits for industrial companies plummeted 9.1% in May, the steepest decline since October of the previous year. A statement in a state-backed newspaper emphasized the need for businesses to enhance product quality and to methodically retire outdated production capabilities.
The modest rebound in consumer prices last month was partly driven by a trade-in scheme that offered subsidies for household appliances, electronics, and electric vehicles. Zichun Huang, an economist at Capital Economics, warned that this stimulus is likely to wane in the latter half of the year, potentially exacerbating underlying inflation if overproduction persists. “With goods supply continuing to outpace demand, persistent overcapacity means price wars among manufacturers are likely to continue,” Huang cautioned.
Larry Hu, chief China economist at Macquarie, emphasized the difficulty in breaking the ongoing deflationary cycle without robust policy support. He noted that the momentum in China’s export performance has influenced Beijing’s reluctance to implement stronger consumption stimulus measures, suggesting that policymakers might wait for a significant decline in exports before taking decisive action.
Despite various challenges, China’s export growth has demonstrated resilience, with overall exports rising 4.8% in May and 8.1% in April, largely driven by increased shipments to Southeast Asia that counterbalance declining exports to the U.S. This complex economic landscape illustrates the multifaceted challenges China faces as it navigates between supporting consumer demand and managing aggressive pricing strategies.
Original Source: https://www.cnbc.com/2025/07/09/china-producer-prices-fall-june-biggest-drop-nearly-two-years-deepening-price-war-cpi-ppi-nbs.html
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Publish Date: 2025-07-09 09:37:00
