China: Inflation accelerates further in July
August 9, 2011
In July, consumer prices added 6.5% over the same month the year before, following an already strong advance of 6.4% in June. The monthly price increase exceeded market expectations of a 6.4% increase in spite of a favourable base effect. The main driver behind the annual increase was a foodstuff price rise of 14.8% (June: +14.4% year-on-year), as meat prices continued to mount. In contrast, overall inflation excluding food inched down from 3.0% in June to 2.9% in July. Owing to the high inflation reading seen in July, annual average inflation rose to 5.0% (June: 4.7% yoy), which represented the highest level since February 2009. Meanwhile, producer price inflation edged up from 7.1% in June to 7.5% in July, which was in line with market expectations. As a result, annual average producer price inflation remained unchanged at 6.1% for a fourth consecutive month. According to some analysts, the higher-than-expected reading for July, which marked the fastest price increase since July 2008, may trigger another interest rate hike in the weeks ahead as Chinese authorities target controlling price rises as their top priority. Nevertheless, growing uncertainties about the pace of the global recovery may delay the next move, with authorities preferring to wait until the situation stabilises. That said, a majority of economists consider that inflation has already reached a peak in July and will trend lower in the months ahead due to a favourable base effect. The government set an inflation target of 4.0% for this year.