China’s producer price inflation eased more than expected in July to its lowest level in three months, while consumer inflation also slowed, pointing to weaker price pressures as domestic demand remains subdued.
The producer price index (PPI) rose 3.5% from a year earlier, down from 4.1% in June and below the 3.8% increase forecast by economists in a Reuters poll, according to data from the National Bureau of Statistics released on Sunday.
The slowdown came as global energy prices retreated and economic activity showed mixed signals. China’s factory output and exports have remained relatively strong, but weaker domestic demand continues to weigh on manufacturers.
Consumer price inflation also eased in July, adding to signs that price pressures remain limited.
The latest figures were in line with other indicators pointing to softer economic momentum. China’s manufacturing purchasing managers’ index fell more than expected in July, while some domestic-market manufacturers have faced weaker demand and rising input costs.
Reuters quoted Zhiwei Zhang, chief economist at Pinpoint Asset Management, as saying the weaker inflation figures were consistent with the decline in the PMI and softer economic momentum in the second quarter.
China’s policymakers have responded by pledging to accelerate fiscal spending on infrastructure projects already included in the budget through the end of the year. However, Zhang said it would take time for the additional spending to feed through to the broader economy.
The weaker factory-gate inflation also highlights growing pressure on manufacturers. While some upstream and high-tech industries have maintained strong profit growth, companies serving the domestic market are facing weaker demand and higher input costs.
Those conditions could further squeeze profit margins and weigh on business confidence as policymakers seek to support growth in the second half of the year.
