“China’s producers are seeing sharp deflation, pointing to a worrying lack of final demand,” said Alastair Thornton, a Beijing-based economist with IHS Global Insight.
The decline in prices, combined with the “sharp” drop in the prices gauge in last month’s purchasing managers’ index “points to considerable sluggishness in domestic manufacturing activity” and should “act as a spur for the government to move more aggressively,” he said.
Anhui Conch Cement Co (安徽海螺水泥), the nation’s biggest cement producer, warned last week that its first-half profit probably fell more than 50 percent as prices of its products “dropped significantly” due to slower growth in fixed-asset investment.
China’s economy expanded 8.1 percent in the first three months from a year earlier, the fifth quarterly deceleration and the slowest pace in almost three years. Growth may slide to 7 percent or “slightly below” this quarter, Credit Suisse Group AG estimated last month, while Citigroup Inc. forecasts a 7.5 percent pace.