China’s producer prices fell 3.6% year-on-year in June, the steepest drop in nearly two years, as a prolonged deflationary trend weighed on manufacturers already contending with weak domestic demand and uncertainty from U.S. tariffs. The decline outpaced economists’ forecasts of a 3.2% fall and marked the biggest slide since July 2023.
While consumer prices edged up 0.1% - the first increase in five months - this modest rebound was largely driven by subsidies under a trade-in program for appliances and electric vehicles. Core inflation rose 0.7%, the fastest pace in over a year, but analysts warn the effect will likely fade later this year as oversupply persists.
Authorities have criticized aggressive price cutting in sectors such as autos and e-commerce, which has failed to revive spending while eroding profits. Industrial earnings plunged 9.1% in May. Beijing pledged tighter regulations to curb destructive price wars and encourage companies to upgrade product quality.
Despite some resilience in exports - driven by higher shipments to Southeast Asia - China’s factory activity shrank for a third straight month in June. Economists expect policymakers to remain cautious with stimulus measures unless exports weaken sharply. Meanwhile, subdued demand and excess capacity continue to threaten a deeper deflationary spiral.