China's July factory

© Reuters. FILE PHOTO: A worker walks past steel rolls at the Chongqing Iron and US Forex GroupSteel plant in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo

BEIJING (Reuters) -China's factory-gate inflation eased to its weakest since February 2021, as raw material prices fell due to already slower construction activity, while consumer prices rose gently, bucking the sharp increases seen elsewhere.

The producer price index (PPI) rose 4.2% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, after a 6.1% uptick in June. Analysts in a Reuters poll had expected an increase in the PPI of 4.8%.

China's producer price growth has slowed from a 26-year high in October last year, giving policymakers some leeway to stimulate the flagging economy.

Input prices slumped in July from June, China's official purchasing managers' index showed, due to a decline in energy and raw material costs and pointing to an eventual fall in producer prices.

Factory-gate price inflation in China is expected to slow and turn negative briefly next year, Capital Economics said in a research note.

The world's second-biggest economy has shown some signs of slowdown and narrowly escaped a contraction in the second quarter, weighed by strict COVID-19 controls, a distressed property market and cautious consumer sentiment.

The consumer price index (CPI) increased 2.7% from a year earlier, the fastest pace since July 2020 and higher than the 2.5% gain in June, but missing forecasts for a 2.9% gain.

The main driver of the pickup in CPI is food inflation with rising 6.3% year-on-year from a 2.9% uptick in June.

Core CPI which excludes volatile energy and food prices, a better gauge of the underlying inflation trend, remained soft rising just 0.8%, slower than the 1.0% rise in June.

The pickup in consumer inflation has added to pressure for policymakers to prop up growth.

If China's CPI exceeds its existing target, policymakers would need to choose between fighting inflation and supporting growth, China International Capital Corp said in a report in late July.

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