China's Industrial Deflation Eases In July As Economic Rebound Accelerates

July was a good month for China's economy, in part because its manufacturing price deflation was lower despite an increase in consumer inflation as the country tries to bounce back from an ongoing pandemic, not to mention flooding that has roiled some aspects of its economy.

Based on figures released Monday by the National Bureau of Statistics, China's consumer price index (CPI) was up 2.7 percent in July year-on-year after inching up 2.5 percent the previous month. Economists' median estimate was a 2.6 percent rally.

In a statement on Monday by the bureau, China's producer price index (PPI) was down 2.4 percent from a year ago for July, in contrast to a 2.5 percent drop based on a survey of market observers by Reuters.

China's factory production has been hitting levels reached before the coronavirus ravaged a great part of the country's economy, as financial rescue programs by the government, demand, and a robust export market spark a recovery.

According to Bloomberg China Economist David Qu in a note, the rising momentum in China's consumer price hike may be temporary despite an advance in July. An increase in the prices of food is also expected to ease before the end of 2020. Coupled with a continuously weak consumer demand, reduced inflation in food prices cause downward pressure to CPI's core, he added. 

The deceleration in manufacturing deflation, triggered largely by rising commodity and factory product prices, is a welcome development for earnings and businesses' potential to boost their income.

Shanghai-based Australia and New Zealand Banking Group economist Xing Zhaopeng pointed out that the period of rapid credit growth has failed to lift basic inflation as prices of key services drop because of existing pandemic restrictions across the country.

Meanwhile, NBS senior statistician Dong Lijuan noted that oil prices and natural gas extraction were the top gainers, with both commodities advancing 12 percent month-on-month courtesy of the consistent rally in prices of crude oil. Prices from the auto and coal mining sector likewise showed strong results in July.