China reports smaller-than-expected drop in consumer prices

cnbc.com:

BEIJING — China reported inflation data for July that pointed to a modest improvement from June.

The consumer price index fell by 0.3% in July from a year ago, but was up by 0.2% when compared with June, according to the National Bureau of Statistics Wednesday.

The year-on-year CPI print for July was slightly better than expectations for a 0.4% decline, according to analysts polled by Reuters. It was still the first year-on-year decline since early 2021, according to official data accessed via Wind Information.

The producer price index fell by 4.4% in July from a year ago, better than the 5.4% decline in June, the data showed.

However, the year-on-year PPI read was worse than the 4.1% forecast by a Reuters poll.

A 26% year-on-year drop in pork prices, a staple food in China, contributed to the overall decline in the CPI in July. Tourism prices rose by 13.1% from a year ago.

Core CPI, which excludes food and energy prices, rose by 0.8% from a year ago — the highest since January, according to official data accessed via Wind Information.

Producer prices will likely turn higher on a year-on-year basis before the consumer price index does, said Bruce Pang, chief economist and head of research for Greater China at JLL.

He expects consumer prices will still be dragged down in the coming months by falling pork prices and a high base effect, while core CPI may gradually rise.

Lackluster domestic demand has persisted since the pandemic. China's consumer price index was flat in June from a year ago. Second-quarter data prompted several economists to warn of growing risk of deflation — a persistent decrease in prices over time.

Officially, China's central bank has pushed back against such fears and said it expects consumer prices