THE country’s factory gate prices shrank for the first time in three years in July, stoking deflation worries and adding pressure on the government to deliver more stimulus as the economy sputters amid a trade spat with the United States.

With demand slowing at home and abroad, Chinese manufacturers are having to cut prices to keep market share, depressing profit margins and discouraging the fresh investment needed to get the economy back on its feet.

Falling prices for crude oil, iron ore and other raw materials are also playing a part.

China’s producer price index (PPI) fell 0.3 percent from year earlier in July, the National Bureau of Statistics (NBS) said Friday.

That compared with zero growth seen in June and a 0.1 percent drop expected by analysts in a recent poll.

It was the first contraction on an annual basis since August 2016, though the index have now dropped sequentially for the last two months. PPI is one gauge of corporate profitability.

Producer inflation in other major economies such as the United States and Germany has also been tepid lately, raising questions about the durability of global demand amid the trade war.

The Chinese industries which saw the steepest factory price declines included oil and gas extraction, and paper and paper product manufacturing, with falls of 8.3 percent and 7.1 percent from a year earlier, respectively.

Energy processing firms such as oil refiners and chemical producers also saw extended price declines.

Prices for some major building materials such as steel reinforcing bars were weak in July as high temperatures and rain stalled construction projects.

Friday’s data also showed China’s consumer inflation picked up to a 17-month high in July, mainly driven by a jump in prices of pork and other proteins.

The consumer price index (CPI) rose 2.8 percent from a year earlier, a touch higher than expectations and June.

Food inflation accelerated at the fastest pace since January 2012. The food price index rose 9.1 percent year on year, picking up from a 8.3 percent uptick in June. Fruit prices surged 39.1 percent and pork prices jumped 18.2 percent.(SD-Agencies)