China’s National Bureau of Statistics released the consumer and factory inflation reports for July. The data showed that factory price inflation had cooled but was better than expected. The reports come amid a possible slowdown in the global economy with Beijing and Washington locked in escalating trade tensions.
The reports are the first after the impact of prices were felt in China’s retaliatory tariffs on $34 billion on goods imported from the U.S. The tariffs came into effect from July 6 onward and applied to a wide range of products from soybeans to whiskey.
Consumer prices edge slightly higher
Consumer price inflation for July showed a modest pickup from the month before. The gains came due to an increase in non-food prices.
Consumer price index was seen rising 2.1% on the year in July. This outcome beat expectations of a 1.9% increase from June. The inflation growth was still in the comfort zone as the government is targeting a 3% inflation growth this year.
On a month over month basis, headline inflation rose 0.3% in July. Core CPI, which strips the volatile food and energy prices were seen rising 1.9% in July. This was an unchanged print compared to June’s core CPI reading.
Food price index was seen rising 0.5% on the year and extended the gains from 0.3% from June. Non-food prices increased 2.4% on the year and advanced from 2.2% from June’s reading.
PPI growth moderates
China’s producer price index data which is a gauge of inflation at the factory gate increased 4.6% in July. Compared to June’s 4.7% increase, this was slightly slower, official data showed. On a month over month basis, producer prices increased 0.1% during the reported month. This was slower than June’s increase of 0.3%.
China’s PPI for July was forecast to edge lower to 4.4%.
The price of raw materials rose 9.0% in July on the year. This marked a modest increase from June’s 0.8%.
Earlier in the week, data showed that China’s import growth had accelerated at the fastest pace since January. This came despite the outlook for inbound shipments remained uncertain due to the drop in the yuan’s exchange rate.
Cautious on the impact of trade wars
Concerns remain on the possible impact of the escalating trade wars. China and the U.S. have been imposing tariffs on imports which were first triggered by the Trump administration.
Last week, the Trump administration further tightened pressure on Beijing as it proposed a higher 25% tariff on over $200 billion worth of goods imports from China.
China responded by proposing tariffs on goods worth $60 billion in imports from the United States. Among the proposed products, China is mulling on increasing tariffs on liquefied natural gas (LNG) imports, iron ore, and on aircraft industry.
The trade tariffs are expected to push import prices in China higher. This is expected to eventually drive produce prices higher.
According to the IMF, China’s inflation is expected to rise at a gradual pace to 2.5%. It said that factory inflation could moderate. Policymakers are closely watching events unfolding from China as the Peoples Bank of China (PBOC) is expected to give more priority to policies to shore up the economy.