China's annual producer price inflation rose to 2.6% in August from 2.4% in July, in line with expectations and showing that factory-gate inflation remains in check despite a food-related surge in consumer prices.
The PPI is the leading indicator of inflation as it reflects producer price increases that may be passed on to consumers. But divergence in recent months between PPI and consumer price index trend may reflect Chinese government sets, controls some prices, such as those for electricity, oil products.
Although the Chinese economy has been growing at a double-digit pace for five years, economists expect competitive pressures and productivity gains to keep a lid on manufacturing prices, offsetting rising food costs.
The market will be eyeing August CPI data out tomorrow.