China Economic Review

China’s July inflation higher than expected

Official inflation data released on Thursday showed a slight jump in consumer prices in China last month driven by rising food and energy costs, with producer prices edging down slightly.

The consumer price index rose to a four-month high of 2.1% year-on-year in July, up from 1.9% the previous month. This exceeded the average market estimate of 2.0% and was partly attributable to food prices rising from 0.3% y/y to 0.5%. Core inflation, which excludes food and energy costs, was unchanged at 1.9%.

Factory prices fell, though less than expected, from 4.7% y/y to 4.6% against a market average of 4.5%.

The sliding yuan and escalating trade tensions with the US suggest import prices will face upward pressure in coming months. However, many analysts believe that China’s weaker economic outlook will force price levels to ease in the longer term.

“The big picture is that we still think inflation on both measures is set to cool during the coming quarters as China’s economy slows and commodity prices fall. This should give the People’s Bank plenty of room to further loosen monetary policy,” wrote Julian Evans-Pritchard, a senior economist at Capital Economics, in a note.