The manufacturing sector in China is feeling stronger the effects of the trade dispute with the US. The producer prices fell for the second consecutive month in August, the National Statistics Office said on Tuesday. The PPI index fell by 0.8% compared to the same month last year. This is the largest one-year decline since August 2016, when it was also 0.8%. In July, the index fell by 0.3%.

At the same time, the Consumer Price Index (CPI) registered an increase of 2.8% YoY in August. However, it remains unchanged on a monthly basis. The increase is above analysts’ expectations for slightly modest growth of 2.6%.

Price pressure in China is generally weak despite food inflation due to rising pig prices. The main risk is deflation or at least the lack of inflation. This puts more pressure on the People’s Bank of China to ease monetary policy.

The mix of positive CPI and negative PPI will be particularly felt by companies and workers in some of the export-intensive sectors, such as machinery and IT equipment. In times of trade war, the price power of these companies shrinks, they are pressured to pay more to their workers because of rising food prices. This will create financial difficulties for some companies facing this pressure.