China Inflation


Inflation rises to three-year high

In June, consumer prices advanced 6.4% over the same month the year before, following an already strong 5.5% tallied in March and exceeding the 6.2% increase expected by the market. Meanwhile, non-food inflation climbed a more subdued 3.0% over the same month last year (May: +2.9% yoy). The main driver behind the annual increase was a foodstuff price rise of 14.4% (May: +11.7% year-on-year), as meat prices jumped a stellar 32.3% (May: +24.3% yoy), along with an unfavourable base effect. That said, all the main sub-components of the consumer price index recorded gains or remained unchanged over the same month last year, confirming the notion that inflationary pressures continue to mount on a broad front. Owing to the higher inflation registered in June, annual average inflation rose to 4.7% (May: 4.5% yoy). Producer price inflation rose to 7.1% in June (May: +6.8 yoy), which came in above market expectations of a 6.9% increase. Owing to the moderate reading, annual average producer price inflation remained unchanged at 6.1% in June for a third consecutive month. The June reading marked the fastest price increase since July 2008 and may pave the way for further interest rate hikes in order to address overheating risks and avoid potential social unrest. Premier Wen Jiabao stressed that ?stabilizing prices remains the top priority for our macro-regulatory policies,? while ?avoiding major fluctuations in the country's economic growth.? Consequently, the People's Bank of China is unlikely to halt monetary tightening in the near term. Analysts see that the persistent tightening will eventually have effect and expect inflation to moderate in the second half of the year.

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