China June Consumer Price Growth Weakens as Producer Costs Surge

China's consumer prices grew slower than expected in June, while wholesale inflation accelerated, as elevated energy costs continued to sap domestic demand.

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Consumer prices rose 1% in June from a year ago, missing economists" estimates of 1.1% growth in a Reuters poll, and slowing from 1.2% in May, according to data released by the National Bureau of Statistics on Thursday.

Core CPI, excluding volatile food and energy prices, also rose 1% in June from a year earlier, edging down from the 1.1% increase in May. Food prices declined 1.6% from a year earlier, easing from a fall of 1.7% in May.

The producer price index jumped 4.1% from a year earlier, in line with economists" forecast and outpacing May's 3.9%. That marked the strongest growth since July 2022, according to LSEG data. On a month-on-month basis, however, PPI declined 0.3%, official data showed.

"Oil prices are by and large on an easing course, and this will prevent PPI from going higher," said Tianchen Xu, senior economist at Economist Intelligence Unit, while attributing the year-on-year strength to the low-base effect. "Factories can't fully pass on cost increases to downstream clients," Xu added, highlighting the entrenched weakness in domestic demand.

The producer prices recorded its worst decline in almost two years in June last year, falling 3.6% from the prior year, as a deepening price war rippled through the economy.

They returned to growth in March with input costs rising on the back of the Middle East conflict, helping end one of China's longest deflationary streaks in decades. Besides higher commodity costs owed to war-led supply disruptions, wholesale prices have also been lifted by a growing demand for artificial intelligence computing power, pushing up prices for tech equipment and semiconductors.

Many investors in China increasingly view the two-speed growth — marked by robust exports versus weak consumption and housing market — as a defining long-term feature of the Chinese economy, said Neo Wang, China strategist at Evercore ISI.