China’s consumer prices remain flat in July, but core inflation shows signs of recovery

China’s consumer prices were unchanged in July, reflecting the continued pressures of weak domestic demand and trade uncertainty. The National Bureau of Statistics (NBS) reported that the Consumer Price Index (CPI) remained at 0.0 per cent year-on-year, following a slight 0.1 per cent rise in June. This performance exceeded the 0.1 per cent decline expected by economists in a Reuters poll. However, on a month-to-month basis, CPI increased by 0.4 per cent, reversing June’s 0.1 per cent drop, driven by higher service and industrial goods prices. July saw food prices decline by 1.6 per cent, a further widening of the previous month’s decrease. This decline, largely due to a high base of comparison from the previous year, dragged down the CPI by approximately 0.29 percentage points.

Core CPI signals economic recovery in key sectors

Despite the flat overall CPI, core inflation, which excludes volatile food and energy prices, rose by 0.8 per cent year-on-year, reflecting growing momentum in domestic demand, especially in the services sector. Core CPI’s rise is the largest since March 2024 and indicates an ongoing recovery in consumption, though it remains partial. Service prices increased by 0.6 per cent month-on-month, contributing significantly to the CPI rise, especially in areas such as air travel, tourism, and accommodations. With the summer travel season in full swing, prices in sectors like air tickets, tourism, hotel stays, and vehicle rentals jumped by 17.9 per cent, 9.1 per cent, 6.9 per cent, and 4.4 per cent, respectively, all above seasonal averages. These sectors alone contributed around 0.21 percentage points to the overall CPI increase.

PPI continues decline, but eases pressure

Meanwhile, the Producer Price Index (PPI), which measures factory-gate prices, fell 3.6 per cent year-on-year in July, the same as in June. However, month-to-month, the PPI showed a slight improvement, declining by just 0.2 per cent, a modest narrowing of the decline seen in previous months. Experts explained that the narrowing was partially due to seasonal factors and improved domestic market competition, while global trade uncertainties continue to weigh on industrial prices. Price increases were recorded in some manufacturing sectors, including aircraft, wearable smart devices, and microwave communication equipment. These gains indicate that downward pressure on industrial prices is easing, as policies to stabilise growth begin to show early signs of success.

(With inputs from agencies)