China's July Inflation Cools as Energy Prices Retreat

China's producer price inflation eased more than expected in July, reaching its weakest level in three months, while consumer price growth also moderated, according to official data released on Sunday. The slowdown comes as global energy prices retreated, despite the ongoing U.S.-Iran conflict.

The producer price index (PPI) rose 3.5% in July from a year earlier, down from 4.1% in June and below the 3.8% forecast by economists in a poll. Consumer inflation also cooled during the month, though the report did not specify the exact CPI figure.

The data reflects a two-speed economy, with strong factory output and exports but weak domestic demand. Chinese leaders have pledged to boost growth by accelerating fiscal spending on already budgeted infrastructure projects through the end of the year.

"Consumer and producer inflation weakened in July. This is consistent with other activity data such as the PMI index, which also dropped more than expected," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Zhang noted that economic momentum softened in the second quarter, and the Politburo signaled stronger fiscal spending as the policy response in July. "The transmission of the fiscal spending will take time," he added.

While some upstream and high-tech sectors have maintained strong profit growth, many manufacturers focused on the domestic market are struggling with sluggish demand as overall economic growth loses steam. Rising input costs threaten to further squeeze profit margins and dampen business confidence.