China’s consumer prices rose more than expected, offering hope of a recovery in domestic demand that has weighed on growth this year.

The consumer price index increased 0.5% from a year earlier, the National Bureau of Statistics said Friday. That’s the biggest gain since February. It compares with a rise of 0.2% in June and a median forecast of 0.3% in a Bloomberg survey of economists.

Factory-gate prices extended a deflationary run that began in late 2022, with the producer price index declining 0.8% from a year earlier. Economists surveyed by Bloomberg had expected a 0.9% drop after a fall of 0.8% in June.

The world’s No. 2 economy is battling its longest streak of deflation since 1999, as weak consumption and investment demand lead to intense price wars in various sectors. Falling prices across the economy have resulted in weaker nominal gross domestic product growth, undermined companies’ profits and threatened to make consumers even more inclined to delay purchases because they expect costs to continue dropping.

The improvement in consumer price inflation was due to “a continued recovery in consumption demand and the impact of high temperatures and rain in some regions,” Dong Lijuan, chief statistician at the NBS, said in a statement.

Vegetable and egg prices climbed in July, reversing losses the previous month as a result of the weather. The gains in consumer prices were led by education and tourism services, which increased 1.7% from a year ago. Clothing and footwear rose 1.5%.

In July, core CPI, which strips off volatile food and energy prices, rose 0.4%, slowing from the 0.6% gain of the previous month. That signals lingering weakness in overall consumer demand.

The offshore yuan ticked higher after the print, while China’s bond futures dipped. The benchmark 10-year yield edged up a basis point to 2.19% in a week where state banks have been actively selling the security to guide yields higher.

Chinese stocks advanced in early trading, with the CSI 300 Index advancing as much as 0.7%, and the Hang Seng China Enterprises Index adding nearly 2%.

Reviving domestic demand is increasingly important as exports — a rare bright spot in the economy this year — unexpectedly slowed in July, signaling a cooling of global demand. That is imperiling Beijing’s goal of around 5% growth for this year.

China’s Politburo, the ruling Communist Party’s top decision-makers, vowed to make boosting consumer spending a greater policy focus in a recent meeting. The government rolled out a 20-step action plan to encourage more spending on services, though it offered little in the way of financial incentives to rev up domestic demand.