Chinese CPI Inflation Rises, But Misses Expectations on Lockdown Woes

By Ambar Warrick

Investing.com-- Chinese consumer and producer price indicators for July came in below expectations on Wednesday, indicating that the world’s second-largest economy was still grappling with the impact of COVID-related lockdown measures.

China’s consumer price index (CPI) rose 2.7% year-on-year in July, up from a 2.5% reading last year, but below expectations of 2.9%. The producer price index (PPI) fell to 4.2% from 6.1% in the prior month, and missed expectations of 4.8%.

The decline in Chinese spending comes after a series of COVID-related lockdowns in major industrial hubs ground economic activity to a halt. Factory activity in particular is under extreme duress from the lockdowns, with a reading last week showing an unexpected contraction in July.

Still, the CPI reading was its highest since late-2020, and reflects that certain aspects of the Chinese economy are recovering steadily.

PMI data last week showed that China’s service sector remained robust, and was largely supporting the economy. Consumer spending also picked up in June after a lull in the first quarter.

July’s inflation readings are within the government’s target range of around 3% for the year. The government has also indicated that it will be tolerant of higher inflation as it pushes to shore up economic growth.

The People’s Bank of China has already cut lending rates several times this year to offset the impact of the COVID lockdowns. A potential real estate crisis has also seen the government unlock more funds to support distressed developers.

But the Chinese government recently indicated that it will not resort to large-scale stimulus measures to spur an economic recovery.

Chinese stocks and the yuan fell in response to the data. The bluechip Shanghai Shenzhen CSI 300 index was trading down 0.2% by 2202 ET (0202 GMT).