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China's monthly inflation cools to 1.8 percent on-year with slower food prices growth

By Leng Cheng | August 9, 2016, Tuesday | Online Edition

CHINA'S consumer price inflation accelerated at its weakest pace in six months as food prices rose at a slower pace in July.

The producer prices extended to decline, underlying market's views that overcapacity should still weigh on the data in a middle term.

The consumer price index (CPI) rose 1.8 percent in July from a year earlier, compared with a 1.9 percent increase in June, the National Bureau of Statistics said on Tuesday. The data posted the slowest pace since January's 1.8 percent.

China CPI inflation recorded the third consecutive drop and has remained well below China's official target of around 3 percent in 2016, despite concerns that disrupted public infrastructure and agricultural production caused by the massive floods would increase inflationary pressures.

"CPI inflation looks good, partly because the food price is coming down despite the flood making the vegetable prices going up," said Helen Qiao, chief greater China economist at Bank of America Merrill Lynch.

"Overall speaking, it still looks like the core CPI inflation remains stable at the time when overall aggregate demand is rather sluggish."

China's July trade data published on Monday showed domestic demand from industrial sectors was weaker than previously expected.

But consumer goods are holding up, as food prices were up 3.3 percent in July, compared with a 4.6 percent gain in the previous month, while prices of pork rose only 16.1 percent compares with a 30.1 percent increase in June.

The producer price index (PPI) dropped 1.7 percent in July from a year earlier, beat analysts' expectation of falling 2 percent.

Producer prices for mining fell 5.6 percent in July year-on-year, while raw materials dropped 4.5 percent.

"PPI inflation should continue to improve and turn positive in the second half of 2016, but it should not stay strong until the capacity reduction has made significant progress," said David Qu, markets economist with Australia and New Zealand Banking Group.

Qu said that the improvement of PPI should benefit the corporate sector's profitability, but is unlikely to encourage private sector investment, as the main beneficiaries are heavy industries which are dominated by state-owned enterprises.

Strengthening producer prices mean there is likely less need to ease in the short-term, though the low inflation showed by the data provide such room to loosen the monetary policy if needed.

But both markets views and signals suggested by the government suggested hesitation on what stimulus measures should be taken to boost the economic growth.

Economy


 

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