BEIJING (Reuters) -China's consumer prices rose at a slightly faster-than-expected rate in July partly due to weather disruptions to food supplies, while producer deflation persisted, keeping the country's underlying consumption trends soft in a test for policymakers.
China's frail consumer sector been a major focus for Beijing as weak domestic demand hobbles the world's second-biggest economy while manufacturing activity shrinks.
The consumer price index (CPI) edged up to a five-month high of 0.5% year-on-year in July, versus a 0.2% rise in June, the National Bureau of Statistics (NBS) reported on Friday, beating a 0.3% increase in a Reuters poll of economists.
On a month-on-month basis, the CPI rose 0.5% against a 0.2% fall in June and a forecast 0.3% increase.
High temperatures and rainfall in some areas last month pushed up food prices, partly contributing to the monthly return to growth, said NBS statistician Dong Lijuan.
Food prices swung from a drop of 2.1% on-year in June to an unchanged outcome in July, while the growth in non-food prices slowed from 0.8% in June to 0.7% last month.
"There's a sharp contrast between food and ex-food CPI... none of the other goods and services saw inflationary moves, suggesting no sign of a pickup in domestic demand," said Xu Tianchen, senior economist at the Economist Intelligence Unit.
Core inflation, excluding volatile food and fuel prices, gained 0.4% on-year in July, down from 0.6% in June.
Weak domestic demand has become a major pain point for the economy, while hopes for an export-led recovery have also been crimped by rising trade tensions with the West, tariffs on Chinese goods and fears of a U.S. recession.
Consumers have largely shunned incentives to revive consumption, as a prolonged housing downturn, job insecurity and a wall of local government debt inhibit them from purchases of especially big-ticket items.
Car sales, the biggest component of China's retail sales, fell for the fourth month running in July despite a national auto trade-in program and eased auto loan rules.
China's capital city Beijing posted a 6.3% slide in retail sales in June while the financial hub of Shanghai saw the gauge of consumption fall 9.4%, underperforming a national rise of 2%, per official data.
The producer price index (PPI) was down 0.8% in July from a year earlier, unchanged from the previous month, and above an expected 0.9% fall.
Chinese leaders pledged at the end of July that the stimulus measures needed to reach this year's economic growth target will be targeted at consumers, days after announcing the allocation of 300 billion yuan ($41.96 billion) in ultra-long treasury bonds to finance equipment upgrades and consumer goods trade-ins.
($1 = 7.1502 yuan)
(Reporting by Qiaoyi Li and Ryan Woo; Editing by Clarence Fernandez and Shri Navaratnam)
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