BEIJING, Sept 9 (Reuters) – China’s factory-gate inflation gathered pace in August and consumer price growth quickened, driven largely by elevated energy costs tied to supply risks from the Middle East war, even as underlying domestic demand remained subdued.
With an export-led rebound cushioning entrenched domestic weakness, the economy faces lingering headwinds from trade tensions, lacklustre consumer demand and weather-related disruptions, casting a shadow over the recovery’s momentum.
The producer price index rose 3.8% from a year earlier, National Bureau of Statistics data showed, accelerating from 3.5% in July and beating a forecast increase of 3.6% in a Reuters poll.
The consumer price index (CPI) was up 0.8% year-on-year, versus a 0.5% increase in July and matching the poll.
“Higher international crude oil and non-ferrous metal prices have pushed up prices across related industries in China,” said Dong Lijuan, a statistician at NBS.
Among the biggest gains, non-ferrous metal smelting and processing prices rose 20.8% from a year earlier, ahead of petroleum, coal and fuel processing at 11.1% and oil and gas extraction at 10.5%.
Faster energy price inflation also contributed about 0.28 percentage points to the annual increase in the CPI, according to Dong.
Core inflation, excluding volatile food and energy prices, was up 1% on year, compared with a 0.9% gain in July.
“The persistence of the conflict in the Middle East means inflation is likely to remain higher for longer than previously expected,” said Nguyen Hoang Nam, China economist at Capital Economics.
“But our base case continues to be that consumer price inflation will fall sharply next year, averaging just 0.4%, while producer prices return to deflation.”
PERSISTENTLY SOFT DOMESTIC DEMAND KEEPS INFLATION SUBDUED
On a monthly basis, CPI increased 0.4%, against forecasts for a 0.3% gain and a 0.1% decline in July.
Fresh vegetable prices climbed 5.5% month-on-month, with the pace of increase accelerating by 4.2 percentage points from July, as persistent heat, heavy rainfall and seasonal supply transitions tightened availability.
Oil prices were supported by heightened tensions in the Middle East as the Iran war dragged on, while an AI-driven memory chip shortage pushed up costs in some sectors. However, persistent weakness in domestic demand kept overall inflation subdued, with piecemeal consumption support yet to spark a broader recovery.
“Core inflation remained at a relatively low level, suggesting inflationary pressure is likely to stay contained for the rest of the year,” said Ding Meng, chief economist of China CITIC Bank International.
“A sustained rise in inflation will still depend on a continued recovery in domestic demand,” he said.
Notably, prices of household appliances slipped back into negative territory, reflecting the fading impact of government-backed trade-in and consumption subsidy programmes.
Policymakers have stepped up efforts to bolster confidence, expanding loan-interest subsidies for consumers and small private firms, while the finance ministry last month signalled additional fiscal support if economic conditions warrant.
Seeking to stabilise the property market, a longstanding drag on household spending, Beijing in August moved to curb housing presales and extended the maximum term for personal mortgage loans to 40 years from 30.
“The economy still contains pockets of deflation, but consumer prices appear poised to settle into a low, positive range,” said Lynn Song, ING’s Greater China chief economist.
(Reporting by Qiaoyi Li, Tina Qiao and Liz Lee; Editing by Shri Navaratnam)
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