China's factory-gate prices rise in June

China and the US are engaged in what could be a damaging trade war

China's factory price inflation rose in June, the government said Tuesday, as a trade war threatens producers in both of the world's top two economies.

The producer price index (PPI) rose 4.7 percent year-on-year, according to the National Bureau of Statistics (NBS), a notch above the 4.5-percent gain forecast in a Bloomberg News survey.

The consumer price index (CPI), a key measure of retail inflation, rose 1.9 percent last month on-year, up from 1.8 percent in May and in line with Bloomberg's forecast.

There are fears that the trade war with the US could stoke inflation, with tariffs making imported goods more expensive in China.

American soybeans are used for cooking oil and animal feed in China, and soybean traders say that in the fourth quarter, when soybean production tails off in Brazil -- the only other major exporter -- China may have no choice but to import more costly US soybeans.

Beijing late Monday encouraged companies to diversify away from the US.

Companies should "adjust their import structure, increase the import of soybeans, soybean meal and other agricultural products, as well as aquatic products and automobiles from other countries and regions," the commerce ministry said in a statement.

Experts worry that if substitutes are not found, the price hikes will translate into higher prices for pork and other food at the dinner table for Chinese families.

An analyst at Nomura investment bank said Beijing may simply return tariffs to importers, making their imposition last Friday more rhetoric than reality.

"Though the trade conflict with the US might add some upward pressure on CPI inflation, we believe the government is likely to introduce special measures such as returning the charged 25 percent tariffs on some agricultural products to importers," said Ting Lu, Nomura's chief China economist, in a note.

Last month, the price of pork rose 1.1 percent after falling this spring, but food prices more generally fell 0.8 percent.

China and the US are engaged in what could be a damaging trade war