PRODUCER prices in China fell the most in more than three years in October, as the manufacturing sector weakened on declining demand and a knock from the Sino-U.S. tariff tensions, reinforcing the case for the government to keep the stimulus coming.

The producer price index (PPI), seen as a key indicator of corporate profitability, fell 1.6 percent in October from a year earlier, marking the steepest decline since July 2016, National Bureau of Statistics (NBS) data showed Saturday. Analysts had tipped a contraction of 1.5 percent for the PPI.

In contrast, China’s consumer prices rose at their fastest pace in almost eight years, driven mostly by a surge in pork prices as African swine fever ravaged the country’s hog herds. Some analysts say the CPI rise could become a concern for policymakers looking to introduce measures to prop up demand.

However, core inflation — which excludes food and energy prices — pressures remain modest.

The factory deflation was punctuated by falling raw material prices, including in the oil and gas extraction and ferrous metal smelting industries. It aligns with other indicators showing shrinking manufacturing activity in October, with the official Purchasing Managers’ Index (PMI) indicating contraction for a sixth straight month.

Zhao Wei, a macro analyst with Wuhan-based Changjiang Securities, said the drag from the real estate sector, which is suffering from a government crackdown on sales speculation and policy tightening on financing for developers, will also become more pronounced.

“Looking ahead, while a low base from last year will provide some support in the next few months, PPI deflation is likely to continue as overall demand is still under pressure,” said Zhao.

“The PPI may continue to be within a negative growth range.”

The more than year-long trade conflict has cost China US$35 billion as the United States has cut down on Chinese imports, driving up prices for American consumers, according to a U.N. study published Tuesday.

October’s consumer price index (CPI) rose 3.8 percent year on year, the most since January 2012 and beating analysts’ expectations for 3.3 percent rate.

The rise was driven largely by a steep climb in pork prices and other meats after African swine fever killed a large portion of China’s pigs. Pork prices more than doubled year on year in October, according to the NBS, accounting for over 60 percent of the CPI increase.

Core CPI for October remained benign at 1.5 percent. For the full year of 2019, China is aiming for a CPI target of around 3 percent. It rose 2.6 percent in the January-October period.(SD-Agencies)