China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for July showed slight improvements over forecasts. CPI rose 0.5% YoY, surpassing expectations (Citi/Mkt: 0.4/0.3% YoY) and reaching the highest level since April 2023, excluding Chinese New Year months.
“The headline number could seemingly offer some relief for China’s soft domestic demand, yet the breakdown appears less encouraging,” the analysts said.
Sequentially, CPI increased 0.5% MoM, reflecting a high reading if CNY months are excluded. Despite this, the breakdown reveals less favorable trends:
The Producer Price Index (PPI) also beat expectations, remaining at -0.8% YoY (Citi/Mkt: -1.1/-0.9% YoY) with a sequential change of -0.2% MoM. However, the small beat might be short-lived due to expected commodity price softening into August. Key sectoral performances include:
Despite the small beats in inflation data, Citi Research argues that these figures may not adequately address persistent deflationary pressures. Supply-side factors, such as food price fluctuations and seasonal travel demand, have driven recent CPI improvements, but core inflation remains weak and PPI faces ongoing challenges from overcapacity and insufficient demand.
Citi maintains its annual inflation forecasts at 0.6% YoY for CPI and -1.4% YoY for PPI, with a negative GDP deflator expected for the year.
Source: Economy - investing.com
