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China Inflation Accelerates On Food Prices


Chinese inflation accelerated more-than-expected on food prices in June. Nonetheless, the below-target inflation and negative producer price inflation underscore the economic weakness, providing scope for policy actions.

Inflation accelerated to 2.7 percent in June from 2.1 percent a month ago, a report from the National Bureau of Statistics showed Tuesday. The rate also exceeded the 2.5 percent forecast by economists.

However, inflation remained well below the 3.5 percent government target. During the first six months of the year, inflation averaged 2.4 percent.

Food prices jumped 4.9 percent annually on higher pork prices, up from the 3.2 percent rate in May. Non-food prices rose a more modest 1.6 percent.

On a monthly basis, the consumer price index remained unchanged from May, when it fell a 0.6 percent.

Meanwhile, factory gate prices continued to remain in negative territory, with prices falling 2.7 percent from the previous year, after declining 2.9 percent in May. Producer prices were expected to have declined by 2.6 percent.

The decline in producer prices since March 2012 underlines the weak trend in domestic demand. On a monthly basis, producer prices dipped 0.6 percent.

Subdued global demand coupled with sluggish domestic demand is likely to weigh on second quarter growth.

Recently, interest rates in the Chinese money market showed volatility due to a cash crunch in the banking system and flow of funds out of emerging markets soon after Fed's announcement concerning the scaling back of stimulus.

However, the People's Bank of China assured markets that it would maintain stability in the financial markets and "adjust" liquidity as and when required to spur lending and economic growth.

Last month, World Bank reduced its 2013 growth forecast for China to 7.7 percent from its January projection of a 8.4 percent expansion. The growth is expected to accelerate to about 8 percent each in 2014 and 2015, as global conditions improve.

by RTTNews Staff Writer

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