China's producer price inflation cooled more than expected in July, marking its weakest level in three months, while consumer inflation also eased, according to official data released on Sunday. This decline came as global energy prices retreated despite the U.S.-Israel war against Iran.
China's leaders, confronting a two-speed economy of strong factory output and exports but weak domestic demand, have pledged to bolster growth by accelerating fiscal spending on already budgeted infrastructure projects through year-end.
"Lower oil prices, combined with weakening demand, caused both (consumer and producer price inflation) in July to come in below expectations. Oil price trends remain uncertain, meaning their impact on inflation is also likely to be uncertain," said Zhaopeng Xing, ANZ's senior China strategist.
"On the demand side, the effect of faster fiscal spending in the second half of the year is likely to be felt with a lag of about one quarter. We maintain our view that inflation will follow an M-shaped trajectory this year."
Fiscal lag, limited effect on quelling price wars
