The Financial Express

China mild inflation provides leeway for economic restructuring

| Updated: August 12, 2019 17:37:23

A saleswoman arranges fruit at a supermarket in Handan, north China's Hebei Province, June 12, 2019. - Xinhua A saleswoman arranges fruit at a supermarket in Handan, north China's Hebei Province, June 12, 2019. - Xinhua

China's consumer prices stayed elevated in July, fueled by higher fruit and pork prices, while factory price inflation dropped year on year, showing that overall inflationary pressures remain under control.

The country's consumer price index (CPI), a main gauge of inflation, rose 2.8 per cent year on year in July, up from 2.7 per cent in June, the National Bureau of Statistics (NBS) said Friday.

The reading beat market expectations of 2.7 per cent. On a month-on-month basis, consumer prices edged up 0.4 per cent last month.

"July's CPI is probably the year's high," said Li Chao, an analyst with Huatai Securities.

Food prices grew 9.1 per cent year on year last month, up from 8.3 per cent in June, while non-food prices gained 1.3 per cent, 0.1 percentage points lower than that of June.

Pricey fruits and pork continued to be the major factors behind the higher inflation rate, said NBS official Dong Yaxiu.

Prices of fruits surged 39.1 per cent year on year, contributing 0.63 percentage points to July's CPI.

Pork prices continued the upward trend last month due to tight supplies, jumping 27 per cent year on year and 7.8 per cent month on month.

The CPI in urban and rural areas registered a year-on-year growth of 2.7 per cent and 2.9 per cent, respectively.

In the first seven months, consumer prices rose 2.3 per cent from a year earlier on average, the NBS said. China set the CPI target for 2019 at 3 per cent.

Friday's data also showed that China's producer price index (PPI), which measures costs for goods at the factory gate, fell 0.3 per cent year on year in July.

The petroleum and natural gas mining sector led the drop, while a contraction in petroleum, coal and other fuel processing also widened, Dong said.

China International Capital Corporation Limited (CICC) projected that CPI may hold flat or edge down in the third quarter, while the year-on-year decline of PPI may widen.

"As the low base effect passes, the upside risk of CPI may lessen in the third quarter," CICC said in a research note.

However, CICC said industrial enterprise profit growth may remain under pressure in the second half as domestic and external uncertainties rise. A higher comparison base last year may also put further downward pressure on PPI, leading to a wider decline in PPI in the upcoming months.

Zhang Jun, a chief economist with China Fortune Securities, said that mild inflationary pressures will not be a constraint on the country's monetary policy.

The mild pressures will give the government more leeway to use multiple monetary policy tools to adjust the economic structure and improve the financing environment for micro- and small-sized companies, Zhang noted.


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