China inflation up 2.3% in July: Govt

 Customers select soft drinks at a supermarket in Handan, Hebei Province. China 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.

AFP/Beijing

China’s annual inflation rose 2.3% in July, official data showed yesterday, remaining stable and allowing authorities space to further stimulate growth in the world’s second-largest economy if needed.

The country’s consumer price index (CPI) – a main gauge of inflation – also rose by 2.3% in the first seven months of the year from the same period in 2013, the National Bureau of Statistics said in a statement.

The CPI had risen 2.3% in June, marking a slowdown from a four-month high of 2.5% in May.

July’s result matched the median forecast of 2.3% in a Wall Street Journal survey of 15 economists and remained well below the 3.5% annual target set by the government in March.

The stable inflation figures came as China’s economic growth has accelerated since authorities introduced measures to boost activity after gross domestic product (GDP) slowed at the beginning of the year.

Moderate inflation can be a boon to consumption as it encourages shoppers to buy before prices go up, while falling prices encourage them to delay purchases and companies to put off investment, both of which can weigh on growth.

Authorities must tread carefully, however, as too much stimulus can cause economic growth to heat up to the point where rising inflation becomes a problem.

“In general, China’s inflation outlook remains mild,” ANZ Bank economists Liu Li-Gang and Zhou Hao said in a research note published after the data.

“However, the deflation risks may even rise in the foreseeable future if the growth momentum weakens again,” they added, cautioning that the threat of falling costs remains, citing a gauge of online consumer prices that has been negative on a year-on-year basis for more than two years.

“Against this backdrop, the central bank should maintain an accommodative bias in the monetary policy stance,” they added.

China’s leaders want to change the country’s economic model, hoping spending by increasingly affluent consumers will play a bigger role in driving growth instead of the large, state-supported investments that have traditionally propelled expansion.

Authorities have since April introduced steps to bolster the economy, such as tax breaks for small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas and to small companies, measures dubbed “mini-stimulus” by some economists.

In response, China’s GDP picked up to a higher-than-expected 7.5% in the second quarter from 7.4% during the first three months of the year, which was the worst since a similar 7.4% expansion in July-September 2012. The government in March set its annual GDP growth target for 2014 at about 7.5%, the same objective as last year.

China’s economy grew 7.7% in 2013, matching 2012’s result, which was the worst since 1999.

Overall food prices drove inflation in July, rising 3.6% from the same month last year, according to the NBS data. Fresh fruit prices surged 20.1%.

China’s producer price index (PPI) – a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI – improved to a decline of 0.9% in July, the NBS said in a separate statement.