China Inflation Cools in June as Producer Prices Hit Four-Year High

China’s consumer inflation slowed in June while producer prices climbed at their fastest annual pace in four years, highlighting uneven inflation trends and reinforcing expectations that policymakers may introduce further measures to support domestic demand.

Official data released on Thursday showed China’s consumer price index (CPI) increased 1.0% year-over-year in June, slightly below economists’ expectations of 1.1% and easing from the 1.2% rise recorded in May. On a monthly basis, CPI fell 0.3%, a steeper decline than the expected 0.2% drop, following May’s 0.1% decrease.

According to Capital Economics, the weaker consumer inflation was largely driven by lower energy costs, while core inflation also softened, suggesting that broader disinflationary pressures continue to weigh on the Chinese economy despite recent signs of stabilization.

Meanwhile, China’s producer price index (PPI) rose 4.1% from a year earlier in June, matching market forecasts and accelerating from May’s 3.9% increase. The latest reading marked the strongest annual producer inflation since July 2022, reflecting favorable base effects rather than broad-based price strength.

Despite the higher annual reading, factory-gate prices declined 0.3% from the previous month, the weakest monthly performance in a year after reaching a peak gain of 1.7% in April. Analysts noted that prices fell across most manufacturing sectors, particularly fuel processing and chemicals. Electronics stood out as a notable exception, with prices rising amid strong artificial intelligence-related demand that has fueled memory chip shortages.

The mixed inflation data underscores the challenges facing China’s economic recovery. While higher producer prices help ease concerns about persistent industrial deflation, subdued consumer inflation signals that household demand remains fragile.

Capital Economics also said the recent escalation in U.S.-Iran tensions could temporarily push inflation higher through energy markets. However, the firm expects any impact to remain limited to specific sectors, with inflation likely to move back toward near-zero levels once energy supply conditions stabilize.

The latest inflation figures are expected to keep pressure on Chinese authorities to introduce additional policy support aimed at boosting consumption and sustaining economic growth.