China inflation up 2.3% year-on-year in July

Deflation risk may rise if momentum weakens, say economists.

BEIJING:

China’s annual inflation rose 2.3% in July, official data showed, remaining stable and allowing authorities further space to 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.

“In general, China’s inflation outlook remains mild,” ANZ Bank economists 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 introduced steps since April 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.

Published in The Express Tribune, August 10^th, 2014.

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