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Analysts expect declines in CPI, PPI

CHINA'S consumer and producer prices may have dropped in July, but the country should prepare for rising inflation, analysts said.

The Consumer Price Index, the main gauge of inflation, may decrease 1.7 percent in July from the previous month, which would match the biggest fall since 1999, predicted Li Huiyong, an analyst at Shenyin & Wanguo Securities Co.

He also estimated the Producer Price Index, the factory-gate inflation measurement, may have slid 8.8 percent last month, down from the record slump of 7.8 percent in June.

Dong Xian'an, an analyst at Industrial Securities Co, expected July's CPI to fall 1.9 percent and PPI to drop 8.5 percent while a report by the Bank of Communications today said the CPI may have slipped 1.75 percent last month.

The National Bureau of Statistics is set to release the data next week.

"Although the producer and consumer price indices have kept falling, price pressures are growing. Input prices are rising rapidly amid strong demand, meaning that producer price inflation may soon return," said Sherman Chan, an economist at Moody's

"Higher production costs will eventually be borne by consumers, thereby squeezing household budgets. Therefore, one of the next policy worries for Chinese authorities could be the return of inflation," Chan said.

Chinese manufacturing showed steady signs of improvement amid more demand as the Purchasing Managers Index has settled in expansionary territory for five straight months. It edged up 0.1 percentage points from June to reach 53.3 in July.

"Upstream inflation is looming because of the returning appetite for basic commodities spurred by the aggressive policy stimulus and tepid recovery in big markets such as the United States and Europe," said Wang Qing, an economist at Morgan Stanley, whose view was in line with some other economists that both CPI and PPI will hit the bottom in the third quarter and may turn positive in the last three months of this year.


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