(Yicai) July 10 -- Consumer and producer prices increased in China last month from a year earlier, but they both declined from the previous month.

The consumer price index rose 1 percent in June from a year earlier, down from a 1.2 percent year-on-year increase the month before, according to data released by the National Bureau of Statistics yesterday. On a monthly basis, the CPI declined 0.3 percent, widening from 0.1 percent in May.

The month-on-month decline in the CPI in June is mainly because the United States and Iran signed a memorandum of understanding that led to a big drop in international oil prices, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. As a result, China’s domestic fuel prices declined, with gasoline prices down 4.9 percent in the period.

Excluding energy and food, the core CPI increased 1 percent last month from a year earlier, with the growth rate narrowing 0.1 percentage point, reflecting the ongoing imbalance between strong supply and weak demand.

The producer price index climbed 4.1 percent in June from the same period last year, up from a 3.9 percent year-on-year increase the previous month, NBS data also showed. On a monthly basis, the PPI fell 0.3 percent, recording the first month-on-month decline in 11 months.

Chief economists surveyed by Yicai had predicted a 1.2 percent increase in the CPI and a 4.2 percent rise in PPI in June from a year earlier.

The month-on-month drop in the PPI is because of the decline in international oil prices, seasonal factors leading to price differentiation in certain industries, and industrial upgrades driving increased demand and rising prices in some sectors, said Dong Lijuan, chief statistician at the NBS.

The decline in international oil prices may further widen in July, and the year-on-year CPI increase will likely drop to around 0.7 percent, Wang predicted. The PPI year-on-year rise may have reached a temporary peak, and it will probably fall to around 3.5 percent this month.

The PPI is expected to expand around 1 percent this year from the previous one, said Wen Bin, chief economist at China Minsheng Bank.

In the second half, a recovery in infrastructure investment is anticipated to support prices of building materials, such as steel and cement, Wen noted. Moreover, investments in artificial intelligence computing infrastructure and new energy, and the promotion of anti-involution policies are expected to support industrial product prices.

The gap between the PPI and CPI has further widened, demonstrating that gains from price increases in upstream sectors are difficult to pass on to end consumer products and that companies have limited ability to transfer costs, according to analysts.

Policies should focus on stabilizing commodity prices, promoting trade-in programs to expand end demand, and accelerating the issuance of special bonds, thereby facilitating a more balanced distribution of profits along the industrial chain, said Pang Ming, senior researcher at the National Institute for Finance and Development.

Editor: Futura Costaglione