(Bloomberg) -- China’s factory inflation slowed sharply in December, continuing the slowdown for a sixth straight month to the weakest level since late 2016 on softening demand and lower commodity prices.
The sharply decelerating pace brings back fears of a return of the deflation which ravaged corporate profits in 2012-2016. A return of slow or falling factory prices in China would squeeze corporate profitability and put pressure on global inflation, as export prices usually follow those at factory gate.
"Deflationary pressures are on the rise in China, driven by weakening domestic and export demand," China International Capital Corp. economists Eva Yi and Liang Hong wrote in a note ahead of the data. "Inflation tends to fall following an extended period of softening demand growth, which was in turn led by slower expansion of the broadly-defined credit cycle."
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