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China June CPI Inflation Slows As Food Prices Ease

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Chinese consumer prices inflation slowed in June from an 4-month high, as food prices increased at a slower rate, a report from the National Bureau of Statistics showed Wednesday. Nevertheless, the increase was slightly below the consensus estimate.

Consumer prices increased 2.3 percent year-on-year in June following the 2.5 percent increase in May. Economists had expected prices to rise 2.4 percent.

Core consumer prices, excluding food and energy, rose 1.7 percent year-over-year. Notwithstanding the elevated headline inflation, aside of food, prices were largely stable.

Among the sub-categories, food prices climbed the most, by 3.7 percent in June, contributing 1.21 percentage points to the overall rise in prices. This was followed by a 2.6 percent increase in clothing prices and a 2.2 percent rise in housing prices.

However, prices of tobacco and liquor dropped 0.6 percent in June, with a 1.6 percent increase in liquor prices offsetting the 0.2 percent increase in tobacco prices.

On a month-over-month basis, consumer prices declined 0.1 percent in June, reversing the 0.1 percent increase in May. Food prices fell 0.4 percent while non-food prices remained unchanged.

Core consumer prices remained unchanged month-over-month in June.

In a separate report, the statistics bureau said that producer prices in China fell 1.1 percent year-over-year in June. This was a faster rate of decline than the 1 percent drop expected by economists. In May, prices had decreased 1.4 percent.

Producer prices for means of production dropped 1.5 percent while prices for means of subsistence rose 0.2 percent in June.

Among the major industries, coal mining and washing industry prices declined the most, by 10.8 percent year-over-year in June. Ferrous metal mining industry prices slid 6.5 percent and prices of chemical fiber manufacturing fell 4.6 percent in June.

On a month-over-month basis, producer prices decreased 0.2 percent in June, a faster rate of decline than the 0.1 percent fall in May.

Commenting on the consumer prices inflation Julian Evans-Pritchard, China Economist at Capital Economics said he expects the slowdown in the annual consumer prices to be shortlived. However, Pritchard believes that core inflatgion will remain steady and inflation is unlikely to get out of hand.

The economists sees the possibility of broader pricing pressure if policymakers resort to across-the-board monetary loosening instead of the targeted measures they have announced in recent months.

On the producer prices he said, "The index is heavily weighted towards industrial inputs and has remained negative for over two years due to subdued commodity prices. But with global commodity price inflation seeing a tepid recovery, producer price inflation now appears to be rebounding."

Earlier this week, the results of a survey by Markit Economics and HSBC Bank showed that the service sector PMI for China rose to a fifteen month high in June.

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