China July factory-gate inflation eases to 3-month low, CPI slows

China's July producer price inflation fell to its lowest in three months, while consumer inflation also slowed, according to official data released on Sunday. This came as energy prices dropped, despite the ongoing conflict between the United States and Iran. Chinese leaders, facing a dual economy of robust manufacturing and exports but weak domestic demand, have vowed to boost growth by increasing fiscal spending on infrastructure projects through the end of the year.

Lower oil prices, alongside weakening demand, led to both producer and consumer price inflation being lower than anticipated in July. However, the effects of China's faster fiscal spending later in the year are expected to take about a quarter to show their impact, according to ANZ's senior China strategist, Zhaopeng Xing. The full-year forecasts for China's producer price index (PPI) and consumer price index (CPI) stand at 2.5% and 1.0% respectively.

Although some sectors like upstream oil and high-tech industries have seen strong profit growth, domestic market-facing manufacturers have struggled due to sluggish demand. Rising input costs have put pressure on these companies' profit margins and dampened investor confidence. The recent price shocks from the US-Israeli conflict in Iran and the closure of the Strait of Hormuz, a crucial oil and gas route, have also contributed to the increase in producer prices, potentially defying China's prolonged deflation trend.

Despite these efforts, household demand for goods remains subdued due to the ongoing property market downturn and job insecurity, suggesting that deflationary pressures might persist.