China CPI cools in June as factory-gate inflation accelerates

China’s consumer inflation eased in June and missed market expectations, while producer prices rose at a faster annual pace, official data showed Thursday. The split points to continued pressure on household demand even as factories face higher costs tied to energy, commodities and technology supply chains.

The National Bureau of Statistics said the consumer price index rose 1% from a year earlier in June. That was below the 1.1% increase economists had expected in a Reuters poll and slower than the 1.2% rise recorded in May.

Core inflation, which strips out food and energy, also increased 1% year on year, according to the statistics bureau. That was a slight step down from May’s 1.1% reading. Food prices remained in deflation, falling 1.6% from a year earlier after a 1.7% decline in May.

At the factory gate, the producer price index rose 4.1% from a year earlier, matching economists’ expectations in the Reuters poll and accelerating from 3.9% in May. Producer prices measure what manufacturers charge as goods leave the factory, so they often capture shifts in raw material, energy and industrial input costs before those pressures reach consumers.

Factory-gate prices had returned to annual growth in March, after one of China’s longest stretches of producer-price deflation in decades. CNBC reported that the rebound followed higher input costs linked to the Middle East conflict, which disrupted supply chains and lifted commodity prices. Demand for artificial intelligence computing capacity also pushed up prices for some technology equipment and semiconductors, according to the report.

More recent business surveys suggested that some of that cost pressure may be fading. China’s official purchasing managers’ index for June showed the input-cost subindex falling to a six-month low of 54.2 from 60.5 in May, according to the statistics bureau. The output-price subindex dropped to 48.2 from 51.9, its first contraction this year, indicating that more manufacturers reported lower selling prices than higher ones.

The inflation data add to evidence of a divided economy. The International Monetary Fund on Wednesday raised its 2026 China growth forecast to 4.6% from 4.4%, while cutting its global growth projection to 3%. Beijing has set a full-year growth target of 4.5% to 5%.

The IMF attributed its improved view on China to strong high-tech manufacturing, export performance and public infrastructure investment brought forward earlier in the year. Those areas have helped offset weaker consumer spending and a prolonged property downturn.

Neo Wang, China strategist at Evercore ISI, said many investors increasingly see China’s two-speed expansion, with strong exports alongside soft consumption and housing, as a lasting feature of the economy. Wang said consumer confidence remains subdued as households continue to feel the negative wealth effect from the housing slump.

Gabriel Wildau, managing director at Teneo, said resilience in exports and manufacturing may reduce Beijing’s urgency to deliver broad new support for consumption. “Policymakers are likely to refrain from major new stimulus unless the slowdown persists beyond the conflict,” Wildau said. He identified the Communist Party Politburo’s late-July policy meeting as the next point at which officials could increase stimulus.

This story draws on original reporting from CNBC.