China's factory inflation hits 17-month low as pressures ease - Reuters

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A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo

• July producer inflation at lowest since Feb 2021
• July consumer inflation at 2-year high

BEIJING, Aug 10 (Reuters) - 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 prices picked up pace, driven mostly by tight pork supplies.

The producer price index (PPI) rose 4.2% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, after a 6.1% uptick in June and missing analyst forecasts for a 4.8% increase.

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.

"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," Zichun Huang, China Economist at Capital Economics, said in a research note.

In a sign of the slowing momentum, PPI fell 1.3% 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%, slowing 10.7 percentage points from June, while the oil and gas extraction industry jumped 43.9%, down 10.5 percentage points, according to a separate statement from NBS.

Input prices slumped in July from June, China's official purchasing managers' index showed last week, due to a decline in energy and raw material costs and pointing to an eventual fall in producer prices. read more

The world's second-biggest economy has slowed considerably and narrowly 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% from a year earlier, the fastest pace since July 2020 but missing forecasts for a 2.9% gain.

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

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

Core CPI, which excludes volatile energy and food prices and is a better gauge of underlying inflation, remained soft, rising just 0.8%, slower than the 1.0% rise in June.

The pickup in consumer inflation has complicated policymakers' deliberations over how to prop up slowing growth.

The prospect of an across-the-board interest rate cut in the short term is seen as low, given existing global inflationary pressures and interest rate hikes in other major economies, said Bruce Pang, a chief economist at Jones Lang Lasalle.

Reporting by Liangping Gao and Ryan Woo; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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