China's July CPI Rises 0.5% Year-on-Year, PPI Up 3.5%! AI Drives Consumer Electronics Price Hikes, but Inflation Recovery Remains Moderate

China's National Bureau of Statistics released the latest data on Sunday (9th), showing that the July Consumer Price Index (CPI) declined 0.1% month-on-month but rose 0.5% year-on-year. Meanwhile, the Producer Price Index (PPI) fell 0.7% month-on-month and increased 3.5% year-on-year, with the annual growth rate narrowing by 0.6 percentage points compared to June.

Dong Lijuan, Chief Statistician of the Urban Division at China's National Bureau of Statistics, stated that in July, CPI's month-on-month decline narrowed due to international import factors, while the year-on-year increase remained moderately positive. Excluding food and energy prices, the core CPI rose 0.3% month-on-month and 0.9% year-on-year, indicating a generally stable and moderate upward trend in overall price levels.

On a month-on-month basis, China's CPI decreased by 0.1% in July, a 0.2 percentage point improvement from June. Dong noted that due to fluctuations in international market prices, domestic gasoline prices dropped 10.7% month-on-month in July, a 5.8 percentage point widening from June, pulling down the CPI's month-on-month growth rate by approximately 0.35 percentage points. Food prices remained flat compared to the previous month but were still 0.6 percentage points below seasonal levels.

Regarding food prices, Dong explained that as comprehensive policy adjustments to hog production capacity gradually took effect, combined with frequent extreme weather such as high temperatures and heavy rainfall in some regions pushing up transportation costs, pork prices turned positive in July, rising 4.1% month-on-month after declining 0.8% in June, contributing about 0.07 percentage points to CPI's month-on-month growth.

Additionally, artificial intelligence (AI) is accelerating the upgrade cycle of consumer electronics, increasing demand and pushing up prices. In July, prices for tablets, computers, and mobile phones rose 11.3%, 5.5%, and 1.0% month-on-month respectively, collectively boosting CPI's month-on-month growth by about 0.03 percentage points.

Service prices also turned positive, rising 0.4% month-on-month in July after being flat in June, lifting CPI's month-on-month growth by approximately 0.21 percentage points.

With summer vacation travel demand rising, prices for travel agency fees, hotel accommodations, airfares, and vehicle rentals increased 7.2%, 6.5%, 4.2%, and 3.6% month-on-month respectively, collectively contributing about 0.10 percentage points to CPI's month-on-month growth. Additionally, ongoing policy-driven price adjustments in some regions led to a 1.1% month-on-month increase in medical service prices, adding about 0.07 percentage points to CPI's month-on-month growth.

On a year-on-year basis, China's CPI rose 0.5% in July, maintaining a moderate upward trend. Dong noted that the year-on-year increase slowed by 0.5 percentage points from June, mainly due to the deceleration in gasoline price growth. Gasoline prices rose 1% year-on-year in July, a sharp slowdown of 16 percentage points from June.

Industrial consumer goods prices excluding energy rose 1.5% year-on-year in July, a 0.2 percentage point narrowing from June. Prices for gold jewelry, personal care products, and household appliances rose 24.6%, 1.7%, and 0.2% year-on-year respectively, though all showed smaller gains than the previous month. Service prices rose 0.7% year-on-year, a 0.1 percentage point narrowing from June, contributing about 0.36 percentage points to CPI's year-on-year growth.

PPI Monthly and Year-on-Year Growth Both Narrow

Dong analyzed that although demand increased in some Chinese industries, import and seasonal factors caused PPI to decline month-on-month in July, with the year-on-year growth also narrowing from the previous month.

On a month-on-month basis, China's PPI fell 0.7% in July, a 0.4 percentage point widening from June.

Dong highlighted two main characteristics in July's PPI movement:

First, import factors drove down prices in some domestic industries. In July, prices in oil extraction, petroleum refining, and organic chemical manufacturing dropped 11.8%, 8.4%, and 4.2% month-on-month respectively.

Nonferrous metal mining and nonferrous metal smelting and processing prices fell 2.1% and 1.7% respectively. These five industries collectively reduced PPI's month-on-month growth rate by about 0.65 percentage points.

Second, seasonal factors also led to price declines in some sectors. According to Dong, frequent high temperatures, rainfall, and typhoons in July slowed construction progress, causing prices in ferrous metal smelting and nonmetallic mineral products industries to fall 0.8% and 0.5% month-on-month respectively.

Meanwhile, increased hydro and wind power generation led to price declines of 10.3% and 3.9% respectively. These four industries together reduced PPI's month-on-month growth rate by about 0.11 percentage points.

On the other hand, Dong noted that industrial transformation, quality upgrades, and rising consumer demand boosted prices in some sectors.

As new growth drivers expand, AI, high-end equipment, and new materials sectors are developing rapidly. In July, prices for smart unmanned aircraft manufacturing, carbon-based new materials, and ship and related equipment manufacturing rose 2.5%, 0.4%, and 0.3% month-on-month respectively.

Meanwhile, quality-oriented consumption continued strong growth, with prices for smart home consumer devices and skincare cosmetics manufacturing rising 3.4% and 0.7% month-on-month respectively.

On a year-on-year basis, China's PPI rose 3.5% in July, a 0.6 percentage point narrowing from June.

By industry, among major price-increasing sectors, oil and natural gas extraction, petroleum, coal, and other fuel processing, and chemical raw materials and products manufacturing prices rose 3.2%, 8.2%, and 9.1% year-on-year respectively. Nonferrous metal mining and smelting and processing prices rose 22.6% and 20.2% respectively. Ferrous metal smelting and processing prices rose 2.7% year-on-year. Price increases in these six industries all slowed from June, collectively contributing about 2.55 percentage points to PPI's year-on-year growth.

Dong noted that coal mining and washing industry prices rose 27.1% year-on-year in July, electrical machinery and equipment manufacturing prices rose 5.7%, and computer, telecommunications, and other electronic equipment manufacturing prices rose 4.4%. Price increases in these three industries all accelerated from June, collectively contributing about 1.53 percentage points to PPI's year-on-year growth.