China's Factory Inflation Hits 17-month Low

China's factory-gate inflation eased to a 17-month low in July, defying global cost pressures as slower domestic construction weighed on raw material demand, although consumer price gains hit a two-year high as pork supplies tightened.

The producer price index (PPI) rose 4.2 percent year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, after a 6.1 percent uptick in June.

China's producer price growth has slowed from a 26-year high hit in October last year, giving policymakers some leeway to stimulate the flagging economy even as central banks elsewhere scramble to hose down rampant inflation with aggressive interest rate hikes.

While China's relatively benign inflation has largely been due to weak domestic demand, a moderation in global price pressures, such as falling oil prices, also contributed to July's slowdown.

"Factory gate inflation will remain on a downward trajectory throughout the rest of the year amid a further drop in commodity prices, easing supply bottlenecks and a higher base for comparison," Huang Zichun, China Economist at Capital Economics, said in a research note.

In a sign of the slowing momentum, PPI fell 1.3 percent month-on-month, its first monthly decline since January, with the biggest falls in the price of metals and petrochemicals.

In annual terms, coal mining and washing industry prices rose 20.7 percent, slowing 10.7 percentage points from June, while the oil and gas extraction industry jumped 43.9 percent, down 10.5 percentage points, according to a separate statement from NBS.

The consumer price index (CPI) increased 2.7 percent from a year earlier, the fastest pace since July 2020.

The main driver of consumer prices is food inflation, which rose 6.3 percent year-on-year, speeding up from a 2.9 percent uptick in June.

Driving the broader food surge were pork prices, which shot up 20.2 percent year-on-year, reversing a 6.0 percent decline in June as production slowed.

However, core CPI, which excludes volatile energy and food prices and is a better gauge of underlying inflation, remained soft, rising just 0.8 percent, slower than the 1.0 percent rise in June. (Reuters)