China's factory-gate inflation grew in May at the fastest year-on-year rate since July 2022, even as consumer inflation remained moderate, adding to signs of strengthening reflation momentum and improving supply-demand dynamics across the industrial sector, experts said on Wednesday.

The latest readings came as fluctuations in global energy prices and a surge of investment in artificial intelligence continued to feed through to the world's second-largest economy, they added.

Looking ahead, experts said that such momentum could underpin a more positive price outlook in the coming months.

Their comments came after data from the National Bureau of Statistics showed that China's producer price index, which measures factory-gate prices, rose 3.9 percent year-on-year in May, accelerating from a 2.8 percent increase in April and marking the third straight month of recovery.

Dong Lijuan, a statistician at the bureau, said the increase in factory-gate inflation in May reflected stronger demand in certain domestic industries and the pass-through effect of fluctuations in international commodity prices.

"The deeper integration of AI with various industries and growing demand for computing power helped push up prices in sectors such as computer-related manufacturing, electrical machinery and nonferrous metals," Dong said.

Echoing that view, Lu Ting, chief China economist at Nomura Securities, said that AI-related fixed-asset investment is expected to contribute 0.3 percentage points to China's GDP growth in 2026.

However, on a month-on-month basis, the PPI edged up 0.5 percent in May, slowing from a 1.7 percent increase in April.

"The slowdown was mainly due to moderating oil price gains," said Feng Lin, executive director of research at Orient Golden Credit Rating International.

At the same time, consumer inflation remained moderate. China's consumer price index, the main gauge of inflation, rose 1.2 percent from a year earlier in May, matching the increase in April, the NBS said.

Lynn Song, chief economist for China at Dutch bank ING, said that China's inflation has stayed at or above 1 percent for four consecutive months and remained in positive territory for eight straight months, suggesting that the trend of reflation, the restoration of deflated prices to a desirable level, is solidifying.

NBS data showed that the core CPI, which excludes food and energy prices and is considered a more accurate indicator of supply and demand conditions, increased by 1.1 percent year-on-year in May.

Despite the improving trend in prices, analysts said that the widening gap between factory-gate and consumer inflation could put pressure on the margins of downstream firms, underscoring the need for more targeted policy support.

"A sustained recovery in prices still hinges on stronger domestic demand," said Mao Zhenhua, chief economist at China Chengxin International Credit Rating Co.

He added that stronger efforts are needed to boost household purchasing power, especially for lower-income groups, and to further tap into services consumption.

Looking ahead, Wen Bin, chief economist at China Minsheng Bank, said that China's price trend is expected to improve further as domestic demand potential continues to be released and a lower comparison base comes into play.

The improving price outlook has further bolstered confidence among global executives.

Pascal Daloz, chairman and CEO of French industrial software company Dassault Systemes, said that the company is seeking to strengthen its industrial AI ecosystem in China.

"China has become one of the places where innovation is moving fastest," he said.

zhangchenxu@chinadaily.com.cn