Producer prices fell 1.7 percent from a year ago in July, better than analysts' expectations for a 2.0 percent decline, Reuters reported Tuesday, citing data from the National Bureau of Statistics. The Producer Price Index (PPI) had tumbled 2.6 percent on-year in June.
July's reading was the slowest decline in producer prices in two years and if sustained, could offer some solace to the country's manufacturers that have endured factory gate deflation for over four years.
Describing the July PPI reading as a "big, positive surprise", Macquarie's head of China strategy Erwin Sanft, said he expected the PPI to finally start turning positive in December after three years in the negative territory.
"Across the coal and steel sectors, there is some capacity elimination happening. We've had three years of really slow investment, particularly among heavy industries, (so) even though there's overcapacity there, it hasn't been getting worse, so that's helpful," Sanft told CNBC's "Squawk Box Asia".
"Generally, everyone is happy in the market. After that credit binge in the first quarter, they actually reigned things in. There's not an attempt to boost growth back to an artificial level," he added.