China’s PPI momentum fades amid weak domestic demand

China's factory-gate prices growth decelerated in July due to a combination of lower domestic fuel prices and high temperatures impacting manufacturing output. The Producer Price Index (PPI) increased by 3.5% year-on-year, down from 4.1% in June, according to data from the National Bureau of Statistics (NBS). Economists had forecast a 3.98% increase.

On a month-to-month basis, the PPI declined by 0.7%, following a 0.3% drop in June. Meanwhile, the national consumer price index (CPI), which tracks inflation, rose by 0.5% year-on-year, slower than the projected 0.85% increase. The month-to-month CPI figure fell by 0.1% from June. Core CPI, which excludes food and energy costs, rose by 0.3%.

Dong Lijuan, a senior statistician at the NBS, attributed the slowdown to international factors, such as the impact of the US-Israel conflict in Iran on oil-related industries and seasonal effects like heavy rainfall and typhoons, which slowed down construction progress and led to price declines in various sectors. Despite the higher energy and commodity prices triggered by the war, factory-gate prices resumed growth in March after 41 months of deflation, the longest such period in decades.

However, the stronger-than-expected growth has not provided significant relief to mid- and downstream manufacturers, who continue to grapple with higher input costs and weak domestic demand, limiting their ability to pass those costs on to consumers.