China's August factory deflation deepens, prices fall most in 3 years

Employees work on the production line of a robot vacuum cleaner factory of Matsutek in Shenzhen China

China's factory prices fall faster as weak demand hits economy

As the two sides prepared for a further round of negotiations, China's trade surplus also dropped sharply last month to $34.83 billion (€31.32 billion), from $44.58 billion in July, while imports continued a four-month decline at 5.6%.

The increase in pork prices was the highest since July 2011 when the price grew 56.7% year-on-year. But he said at the time that price changes in China remained moderate.

The producer price index (PPI) - an important barometer of the industrial sector that measures the cost of goods at the factory gate - dropped 0.8 percent on-year in August, following a 0.3 percent drop in July.

"China's declining producer price index (PPI) carries more weight with policymakers in their monetary policy decisions, in our view".

Consumer prices were also broadly subdued and only supported by a surge of nearly 50 percent in the price of pork caused by African swine fever that has ravaged the country's pig industry.

The higher headline CPI figure was partly led by surging pork prices, which registered a jump of 46.7 percent in August from a year earlier, 19.7 percentage points faster than the previous month.

In addition to pork, fresh fruit prices rose 24 percent, 15.1 percentage points slower than July, while prices for beef, mutton and chicken all posted increases between 11.6 percent and 12.5 percent year on year.

China's oil and gas extraction industries saw the greatest deflationary pressure in August, notching up price declines of 9.1 per cent on year, according to official results. PPI inflation also fell further in fuel processing and ferrous metal processing industries.

Spot prices for steel reinforcing bars continued to hover below the level seen in the same period a year ago, worsened by a seasonal slackening in construction activities during summer.

Analysts expect more pain for Chinese exporters in upcoming months, with more US tariff measures set to take effect on October 1 and December 15.

Analysts say China's economic growth has likely cooled further this quarter from a near 30-year low of 6.2% in April-June, and could test the lower end of the government's 6-6.5% 2019 target. Since the first case of African swine fever was reported in Northeast China's Liaoning province in August 2018, the virus has spread to every provincial-level region in China.

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