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China's June factory-gate inflation cools, as consumer prices accelerate

Some signs of recovery amid COVID-related slumps, global recession fears

Employees work on solar panels at a factory of Risen Energy in Ningbo, Zhejiang province, China. Increasing raw material prices have sent producer inflation soaring. (Zhejiang Daily via Reuters)

BEIJING (Reuters) -- China's factory-gate inflation cooled in June to the lowest in 15 months, as strict anti-COVID measures hit demand and global recession fears triggered a selloff in ferrous metals, while consumer inflation rose to the highest in nearly two years.

The producer price index (PPI) rose 6.1% year-on-year, the National Bureau of Statistics (NBS) said on Saturday, after a 6.4% rise in May. That was a faster rate than expectations of 6.0% growth tipped in a Reuters poll.

The consumer price index (CPI) increased 2.5% from a year earlier, widening from a 2.1% gain in May and the highest in 23 months. In a Reuters poll, the CPI was expected to rise 2.4%.

The CPI stayed flat month-on-month, after the 0.2% drop in May, beating the 0.1% decline in a Reuters poll.

The world's second-biggest economy showed some signs of recovery in recent months after a sharp COVID-induced slump, although headwinds to growth persist, including soft consumer spending and worries of any recurring waves of infections.

COVID-19 lockdowns were lifted in Shanghai and some other larger cities in June, but some areas have recently reported flare-ups in cases, which could slow or even stymie a recovery.

China is planning to set up a 500 billion yuan ($75 billion)state infrastructure fund to revive the economy, two people with knowledge of the matter have told Reuters.

Producer inflation has cooled this year after it registered a 26-year high in October because of a hike in raw material prices.

That contrasts sharply with soaring global inflation that has prompted major central banks in the rest of the world to raise interest rates.

In late June, the People's Bank of China (PBOC) Governor Yi Gang pledged to keep monetary policy accommodative to support an economic recovery.

The pickup in consumer inflation follows a surge in pork prices and adds to pressure on the country's policymakers to implement further supportive monetary policy, though the rates is still below the government target of an around 3% rise.

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