TMTPost -- China’s consumer inflation ticked up more than expected last month though it still has to take some time to shrug off deflation fears.

Credit：Xinhua News Agency

The Consumer price index, or CPI, rose 0.5% year-over-year (YoY) in July, accelerating from an increase of 0.2% a month ago, according to the National Bureau of Statistics of China (NBS). Analysts had projected a 0.3% YoY pickup in the main gauge of inflation. The YoY increase in July was the highest since a 0.7% rise in February, a month in which Chinese New Year, the most important holiday of the year, fell on. On sequential basis, CPI edged up 0.2%, reversing a decline of 0.2% in June.  

Affected by heat and torrential rain in some regions, food played a key role in the pickup in consumer inflation last month. Prices of pork, a widely consumed food staple in China, soared 20.4% YoY, the highest increase since December 2022. That surge affected 0.24 points of the headline CPI growth. The prices of fresh vegetables and eggs saw an increasing trend. As for non-food products, airline tickets and hotel accommodation prices rose significantly due to the booming demand for summer tourism, higher than the average level in the same period of the past decade.

Core CPI, which excludes food and energy prices, gained 0.3% month-on-month (MoM) from a 0.1% fall in June, surpassing the average of the same period in a decade. The gauge slowed down on YoY basis with a 0.4% increase, compared with a 0.6% rise in June. Core CPI rose least since January, signaling the weakness of overall demand persists.

As consumer demand continued to recover, coupled with the impact of high temperatures and heavy rainfall in some areas, the CPI shifted from a MoM decline to an increase in July, with a larger YoY growth rate, NBS statistician Dong Lijuan commented.

The food inflation reading was in part driven by supply-side distortions brought by adverse weather including extreme heat and flooding, Nomura economists said in a note to clients. None of the goods and services except food saw inflationary moves, suggesting no sign of a pickup in domestic demand, said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Conditions are in place to see inflation trend a little higher in the coming months but it should not impede China’s further monetary easing, Lynn Song, chief economist, Greater China, ING, said in her note Friday. “With low inflation and weak credit activity, domestic factors continue to favor further monetary policy easing,” she said. “We continue to look for at least one more rate cut this year with the potential for more if global rate cuts accelerate.”

NBS also released Friday China’s producer price index (PPI) went down 0.8% YoY and 0.2% MoM in July, the same falls as the previous month. The ongoing negative growth of the measure of costs for goods at the factory gate was due to the lack of market demand and the decline in the prices of some international commodities, offcial news agency Xinhua reported.

Yu Jianxun, an NBS official, stressed the necessity of unleashing consumption potential through trade-ins of consumer goods programs. By boosting residents' spending power, cultivating new consumption points and expanding the consumer market, the fundamental role of consumption in economic growth will be strengthened.