China's consumer inflation tame in July, but producer deflation stubborn

Rate remains steady at 2.3pc but producer deflation proves stubborn

PUBLISHED : Sunday, 10 August, 2014, 5:53am
UPDATED : Tuesday, 12 August, 2014, 6:50pm

The mainland posted mild consumer inflation yesterday, well below the annual target in July, giving authorities room to further relax monetary policy.

But deflationary pressure for producers remained stubborn, highlighting a wobbly economic rebound.

Data from the National Bureau of Statistics showed that the consumer price index held steady at 2.3 per cent year-on-year in July, while the producer price index fell 0.9 per cent for the 29th consecutive month.

Analysts attributed the steady CPI to slides in prices for fresh fruit and vegetables, which offset rises in other categories.

"In general, China's inflation outlook remains mild; however, the deflation risks may even rise in the foreseeable future if the growth momentum weakens again," ANZ economists Liu Li-Gang and Zhou Hao said in a research note.

"Against this backdrop, the central bank should maintain an accommodative bias in the monetary policy stance."

Ma Zihui, researcher at Huarong Securities in Beijing, said the slide in the PPI was "not a good message". He added: "July macroeconomic data might come out worse than some people expected."

The bureau said on its website that the slowing pace of PPI declines in recent months - after plummeting 2.3 per cent in March - suggested a nascent recovery in industrial demand.

Consistently mild inflation this year has given the government leeway to ease up on liquidity taps, and it has experimented with a variety of measures intended to support growth without reinflating asset bubbles.

But economists are divided as to how effective these efforts have been. While exports and manufacturing activity produced positive surprises in July, import and services data suggest fundamental domestic demand remains subdued.