By Liangping Gao and Kevin Yao
BEIJING (Reuters) -China's factory-gate inflation eased in July to a 17-month low, defying global cost pressures as slower domestic construction weighed on raw material demand, although consumer price increases hit a two-year high as pork supplies tightened.
The producer price index (PPI) rose 4.2% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, versus an uptick of 6.1% in June and analysts' median forecast of 4.8%.
China's producer price growth has slowed from a 26-year high in October last year, giving policymakers some leeway to stimulate the flagging economy even as central banks elsewhere scramble to hose down rampant inflation with aggressive interest rate hikes.
The consumer price index (CPI) increased 2.7% from a year earlier, the fastest pace since July 2020, but below forecasts for a gain of 2.9%.
The government has set an annual consumer inflation target of about 3%, while Premier Li Keqiang said last month China would be able to keep the 2022 price rise under 3.5%, in a bid to highlight the need to stabilise prices and employment.
"If we can keep the unemployment rate below 5.5% and the CPI rise stays under 3.5% for the whole year, we can live with a growth rate that is slightly higher or lower than the target, not too low, of course," Li said in a discussion with business leaders hosted by the World Economic Forum.
While China's relatively benign inflation has largely been due to weak domestic demand, a moderation in global price pressures, such as falling oil prices, also contributed to July's slowdown.
"Factory gate inflation will remain on a downward trajectory throughout the rest of the year amid a further drop in commodity prices, easing supply bottlenecks and a higher base for comparison," Zichun Huang, China economist at Capital Economics, said in a research note.
In a sign of the slowing momentum, PPI fell 1.3% month-on-month for its first monthly decline since January, with the biggest falls in the price of metals and petrochemicals.
In annual terms, coal mining and washing industry prices rose 20.7%, slowing 10.7 percentage points from June, while the oil and gas extraction industry jumped 43.9%, down 10.5 percentage points, the NBS said in a separate statement.
EVENTUAL FALL
Input prices slumped in July, China's official purchasing managers' index showed last week, due to a decline in energy and raw material costs and pointing to an eventual fall in producer prices.
The world's second-biggest economy has slowed considerably and narrowly escaped a contraction in the June quarter, weighed by strict COVID-19 controls, a distressed property market and cautious consumer sentiment.