China's factory-gate inflation eased to a three-month low in July, while consumer price growth also slowed, as lower oil prices and weak domestic demand moderated price pressures despite the ongoing Iran conflict. Investors will now watch whether subdued domestic demand continues to constrain companies' ability to pass higher input costs on to consumers.
Factory-Gate Inflation Slows
China's producer price index (PPI) rose 3.5% year-on-year in July, easing from a 4.1% increase in June and coming below the 3.8% rise expected by economists polled by Reuters. The reading marked a three-month low for producer inflation.
The moderation came as global energy prices retreated from earlier peaks. While oil prices remained volatile through June and July amid disruptions linked to the Iran conflict and the Strait of Hormuz, lower energy costs helped ease some pressure on China's factory-gate prices.
Also Read | US Record Oil Production, Economists Debate On China Growth & The New Fed Plan | The Week In Whys
The decline in producer inflation also reflects weak domestic demand. China's economy has continued to show a divergence between strong exports and manufacturing output and softer local consumption, limiting the ability of factories to fully pass higher production costs on to customers.
Deflation Risks Remain
Consumer price inflation slowed to 0.5% in July from 1% in June. Core CPI, which excludes food and energy prices, eased to 0.9% from 1%.
The latest figures could revive concerns over China's prolonged struggle with deflation. Persistent weak demand has weighed on corporate profitability, investment and hiring, particularly among manufacturers serving the domestic market, even as some upstream and high-tech sectors have maintained strong profit growth.
Also Read | India's China+1 Bet Gets An AI Boost As Fund Managers Eye Capex Winners
Chinese policymakers have pledged stronger fiscal support and measures to boost domestic demand. However, economists expect the impact of faster fiscal spending to take time to feed through to the broader economy.
With oil prices easing from earlier highs but remaining volatile, the key question for China's economy is whether inflation can regain momentum without a stronger recovery in household demand.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.