China's producer price index fell 5.4 percent on the year in June for the ninth straight drop after falling 4.6 percent in May in light of easing global commodities markets and slowing domestic demand. The decline is sharper than the consensus forecast for a decline of 5.0 percent. The index dipped 0.8 percent on the month for the third consecutive drop, after falling 0.9 percent previously.

The Econoday Consensus Divergence Index stands at minus 64, well below zero, which indicates the Chinese economy is performing much worse than expected. Excluding the impact of inflation, the index is at minus 70.

Among production materials whose prices fell at a faster pace of 6.8 percent on the year in June after a 5.9 percent fall in May, mining costs fell 16.2 percent versus a 11.5 percent drop, raw materials prices were down 9.5 percent after a 7.7 percent dip and the decrease in processing prices were 4.7 percent, little changed from 4.6 percent in the prior month.

Of consumer goods whose prices fell 0.5 percent on the year in June after edging down 0.1 percent in May, food costs slipped 0.6 percent after a 0.2 percent rise and durable goods prices slumped 1.5 percent after shrinking 1.1 percent while clothing prices gained 1.0 percent after a 1.4 percent rise and the increase in daily use goods was unchanged at 0.3 percent.

Producer prices have been in annual contraction the last eight reports. June's consensus is deepening contraction at minus 5.0 percent versus minus 4.6 percent in May.

The Producer Price Index (PPI) measures the change in the price of goods purchased and sold by producers. The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time. The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

It is a leading indicator of consumer inflation - when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

The PPI measures the industrial products price changes for the domestic market. Unlike most other countries, China only produces a comparison with the same month in the previous year but not with the previous month. The PPI covers all manufacturing activities. The prices include excise taxes but exclude VAT. The industry breakdown for the PPI follows China's Industrial Classification of the National Economy. The data include a 38 industry breakdown and are not adjusted for seasonality. They are available by the 20th of the month following the reference month and are published in the daily NBS paper"China Information".

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses. Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.