China's producer price index (PPI) rose 4.1% year-on-year in June, the strongest growth since July 2022, according to data released by the National Bureau of Statistics. The increase outpaced May's 3.9% rise and matched economist forecasts. Producer prices had returned to growth in March after declining 3.6% in June 2023. On a month-on-month basis, the index fell 0.3%.

Tianchen Xu, a senior economist at Economist Intelligence Unit, attributed the year-on-year strength to a low-base effect. "Oil prices are by and large on an easing course, and this will prevent PPI from going higher," Xu said. He added, "Factories can't fully pass on cost increases to downstream clients." Official Purchasing Managers' Index data showed input cost inflation easing to 54.2 in June from 60.5 in May, while the output price sub-index fell to 48.2 from 51.9.

Consumer prices rose 1% in June, slowing from 1.2% in May and missing the 1.1% forecast by economists. Core CPI, which excludes volatile food and energy prices, rose 1%, down from 1.1% in May. Food prices declined 1.6%, an improvement from the 1.7% drop observed in May.

The International Monetary Fund forecast China's economy will grow 4.6% this year, up from a previous projection of 4.4%. The fund cited robust high-tech manufacturing, export performance, and frontloaded public infrastructure investments for the optimistic view. China has set a growth target of 4.5% to 5% for the year.

"Policymakers are likely to refrain from major new stimulus unless the slowdown persists beyond the conflict," said Gabriel Wildau, managing director at Teneo. Wildau noted that a top policy meeting by the 24-member Politburo of the Communist Party in late July could be the next opportunity to escalate policy stimulus.