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August 5, 2009

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CPI and PPI likely to fall again in July

CHINA'S consumer and producer prices may extend their decline in July, but analysts warned of growing pressure for inflation to rise, said analysts.

The Consumer Price Index, the main gauge of inflation, may fall 1.7 percent in July from a year ago, similar to the drop in June which was the biggest decrease since 1999, Li Huiyong, an analyst at Shenyin & Wanguo Securities Co, forecast.

He also estimated the Producer Price Index, the factory-gate inflation gauge, to slide 8.8 percent last month, a further drop from the record slump of 7.8 percent in June.

Dong Xian'an, an analyst at Industrial Securities Co, predicted July's CPI to fall 1.9 percent and PPI to shrink 8.5 percent while a report by the Bank of Communications yesterday said the CPI may drop 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 been falling, price pressures are growing," said Sherman Chan, an economist at Moody's "Input prices are rising rapidly amid strong demand, meaning that producer price inflation may soon return."

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

"Inflation is looming because of the appetite for basic commodities spurred by the aggressive policy stimulus and tepid recovery in the United States and Europe," said Wang Qing, an economist at Morgan Stanley, whose view echoed other economists that CPI and PPI will hit the bottom in the third quarter and may turn positive in the last three months of the year.


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