China inflation figures have surprised on the downside for July. Headline CPI printed at 2.7%, versus 2.9% expected. It was still a pick-up from last month though (2.5%), see the chart below (the white line is headline inflation). Prices in the month rose 0.5%. Upward momentum was mainly driven by higher food prices, which rose 6.3% in YoY, a strong step up from +2.9% last month, as pork prices surged 20% YoY. Non-food CPI rose 1.9% YoY, down from 2.5% last month, while core inflation, excluding food and energy slipped to 0.8% YoY, the softest pace since April 2021 (the orange line in the chart below).
- Of the 8 sub-categories, outside of food, only one other (clothing) recorded a rise in YoY terms for July.
- All in all, the inflation picture appears fairly consistent with a still soft domestic demand backdrop overall, and not an economy that is bumping up against capacity constraints.
- Upstream prices pressures also moderated more than expected. The PPI was down -1.3% MoM, to +4.2% YoY, versus the market estimate of 4.9%.
- Mining and raw materials showed further sharp falls in YoY momentum, but so did manufacturing. This sub-sector is back to +0.9% from +2.4% last month. The only place where upstream price momentum gained momentum was in the food sector
Fig 1: China Inflation, Momentum Slowed In July Outside of Food Prices
Source: MNI/Market News/Bloomberg