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July 10, 2018

China June producer inflation hits six-month high, consumer inflation up slightly

China June producer inflation hits six-month high, consumer inflation up slightly
FILE PHOTO: A customer uses a Xiaomi smartphone at a Xiaomi store in Beijing

BEIJING (Reuters) - China's producer inflation accelerated to a six-month high in June, lifted by strong commodity prices and threatening to put more pressure on the country's exporters as a trade war escalates between Washington and Beijing.

Annual consumer inflation also edged up as food prices rose at a faster pace, official data showed on Tuesday, though the central bank is likely to remain more focused on cushioning the slowing economy than retail prices.

The United States and China slapped tariffs on $34 billion worth of each others' goods last week, fuelling fears of a prolonged battle that would hurt global trade, investment and growth, while also damaging U.S. farm exports and potentially driving up food prices in China.

The producer price index (PPI) -- a gauge of industrial profitability -- rose by a stronger-than-expected 4.7 percent in June from a year earlier, compared with a 4.1 percent increase in May, according to the National Bureau of Statistics (NBS).

China's producer inflation has now picked up for three months in a row after easing in late 2017.

For graphic on trends in inflation in China and other major economic indicators click http://tmsnrt.rs/2iO9Q6a

On a month-on-month basis, the PPI rose 0.3 percent in June, compared with 0.4 percent growth in May.

Analysts polled by Reuters had expected June producer inflation would pick up to 4.5 percent, buoyed by a recent recovery in global commodity prices.

Raw material prices jumped 8.8 percent in June from a year earlier, compared with a 7.4 percent increase in May.

The higher prices have helped fuel sharp gains in earnings, with profits at China's industrial firms growing at a sizzling pace in May.

But much of the jump has been in prices of resources such as oil and coal and other raw materials, benefitting producers but raising input costs for manufacturers like exporters who are further along supply chains.

The intensifying trade dispute with the U.S. did rattle China's commodity markets last month, after both sides imposed tit-for-tat duties on each other's imports on Friday.

FEW SIGNS OF TARIFF IMPACT FOR CONSUMERS YET

The consumer price index (CPI) rose 1.9 percent in June from a year earlier, in line with expectations for a slight pick-up from May's gain of 1.8 percent.

On a month-on-month basis, the CPI fell 0.1 percent.

The core consumer price index, which strips out volatile food and energy prices, was unchanged at 1.9 percent in June.

The food price index rose 0.3 percent from a year earlier, after ticking up 0.1 percent in May. Non-food prices rose 2.2 percent, compared with 2.2 percent growth a month ago.

Prices of agricultural products in particular are expected to jump after Beijing imposed tariffs on imports of U.S. soybeans and other products used to feed its huge livestock sector.

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