BEIJING China's factory-gate inflation dipped to a 17 month low in July, defying global cost pressures as slower domestic construction weighed on raw material demand, although consumer prices picked up pace, mainly due to tight pork supplies.
The Producer Price Index PPI increased by 4.2 per cent year-on-year, the National Bureau of Statistics NBS said on Wednesday after a 6.1 per cent increase in June and missing analyst forecasts for a 4.8 per cent increase.
China's producer price growth has slowed from a 26 year high hit in October last year, giving policymakers a chance to stimulate the flagging economy even as central banks elsewhere try to hose down rampant inflation with aggressive interest rate hikes.
In a research note, Zichun Huang, China Economist at Capital Economics, said factory gate inflation will remain on a downward trajectory throughout the rest of the year, despite a drop in commodity prices, easing supply bottlenecks and a higher base for comparison.
In annual terms, coal mining and washing industry prices fell 20.7 per cent, a 10.7 per cent decline from June, while oil and gas extraction industry prices rose 43.9 per cent, down 10.5 per cent, according to a separate statement from NBS.
In July from June, China's official purchasing managers' index showed last week that input prices fell due to a decline in energy and raw material costs and an eventual fall in producer prices.
The world's second-biggest economy has slowed considerably and escaped a contraction in the second quarter, weighed by strict COVID 19 controls, a distressed property market and cautious consumer sentiment.
The consumer price index CPI increased 2.7 per cent from a year earlier, the fastest pace since July 2020, but missed forecasts for a 2.9 per cent gain.
The main driver of consumer price inflation is food inflation, which rose 6.3 per cent year-on-year, moving up from a 2.9 per cent increase in June.
Pork prices, which shot up 20.2 per cent year-on-year, rebounded from a 6.0 per cent decline in June, as production slowed.
The Core CPI, which excludes volatile energy and food prices and is a better gauge of underlying inflation, remained soft, rising just 0.8 per cent, slower than the 1.0 per cent rise in June.
The prospect of an across-the- board interest rate cut in the short term is seen as low, given existing inflationary pressures and interest rate hikes in other major economies, said Bruce Pang, chief economist at Jones Lang Lasalle.