China's consumer inflation accelerated while factory-gate price growth gathered pace in August, both reversing July's month-on-month declines, as the global artificial intelligence investment boom and renewed hostilities in the Middle East pushed up technology-related and energy prices, analysts said on Wednesday.
However, underlying price gains remained modest and sectoral divergence persisted, they added, calling for stronger policy support to boost domestic demand and thereby promote a "reasonable rebound in prices".
The consumer price index, a main gauge of inflation, rose 0.8 percent year-on-year in August, up from 0.5 percent in July, the National Bureau of Statistics said on Wednesday. On a month-on-month basis, the CPI rose 0.4 percent, reversing a 0.1 percent decline in July.
The acceleration, according to Feng Lin, executive director of research at Orient Golden Credit Rating International, largely reflects a sharp rise in domestic gasoline prices as escalating tensions in the Middle East pushed global crude prices higher again.
NBS data showed that energy prices rose 4.1 percent year-on-year in August, up from 0.6 percent in July and contributing about 0.28 percentage points to CPI growth, with gasoline prices in particular jumping 9.3 percent.
Gold jewelry prices also provided a major boost, surging 33.6 percent year-on-year, with the increase widening by 9 percentage points from July, according to the bureau.
Meanwhile, price gains extended to consumer electronics as China's industrial upgrading gathered pace, with tablet, computer and mobile phone prices rising 21.5 percent, 19.6 percent and 11 percent year-on-year, respectively, all faster than in July, NBS data showed.
Feng attributed much of the increases to a surge in chip prices fueled by the global artificial intelligence investment boom. Feng estimated that the three categories together added about 0.38 percentage points to year-on-year CPI growth, making them "another key driver of the broader pickup in inflation" in August.
Su Jian, director of the National Center for Economic Research at Peking University, also struck an optimistic note. "The data point to continued structural upgrading of the economy in August, with high-tech industries expanding rapidly and demand in related end markets remaining robust," he said.
Despite the broader pickup in prices, weakness persisted in some categories. Food prices fell 1.4 percent year-on-year in August, while rental housing costs were down 0.6 percent from a year earlier for a fifth consecutive month, NBS data showed.
"Consumer prices remain under pressure," said Lynn Song, chief economist for China at Dutch bank ING, pointing to food and housing — which account for about 30 percent and 22 percent of the CPI basket, respectively — as persistent drags on China's reflation in recent months.
The growth in core CPI, which excludes volatile food and energy prices and is deemed a better gauge of the supply-demand relationship in the economy, edged up to 1.0 percent year-on-year from 0.9 percent in July.
"The reading remains relatively low, giving policymakers considerable room to step up support for consumption and countercyclical adjustment, including interest rate cuts by the central bank," said Feng of Orient Golden Credit Rating International.
Meanwhile, factory-gate inflation also strengthened, with China's producer price index rising 3.8 percent year-on-year in August, up from 3.5 percent in July, NBS data showed. On a monthly basis, the index rose 0.4 percent, reversing a 0.7 percent decline in July.
Dong Lijuan, an NBS statistician, attributed the pickup to higher global commodity prices lifting prices in related domestic industries, alongside stronger demand in some sectors as industrial upgrading advanced.
"The link between CPI and PPI became more pronounced in August than in July," said Zhang Di, chief macroeconomic analyst at China Galaxy Securities.
The rebound in crude prices lifted both upstream raw material prices captured by the PPI and transport-related prices in the CPI, while higher factory-gate prices in the electronics and communications sector fed through to consumer prices for communication devices, Zhang added.
Looking ahead, Wen Bin, chief economist at China Minsheng Bank, said core inflation is likely to strengthen further as the drag from pork prices fades and holiday spending lifts services consumption, while year-on-year PPI growth may edge down slightly in the fourth quarter amid commodity price volatility.
(Source: China Daily)