Econintersect: July saw another increase in inflation in China. CPI advanced 6.5% year-over-year, up from a 6.4% advance in June. Not a good omen, PPI increased by 7.5% over July 2010. Producer price increases have a tendency to bleed through into future CPI. The figures were reported by the NBS, the National Bureau of Statistics, which is no longer mentioning that their inflation target for CPI is 4%. Two months ago, with CPI inflation up 5.5% year-over-year in May (see GEI News), a 4% target seemed within reach. Apparently that’s not so any more.Food prices are driving the inflation at the consumer level. The price of pork, a staple food in China, soared by nearly 57% in July. On a month-on-month basis, the CPI increased 0.5% over that of June. According to Reuters, the spate of interest rates this year, the most recent last week, are likely to continue. From Reuters:
But analysts who argued Beijing is likely to keep raising rates noted China’s economy is only slowing gently and is still seen growing by more than 9 percent in 2011. Given that, they say stubborn inflation is the bigger risk right now.
China’s inflation-adjusted interest rates are still negative. That encourages savers to funnel their money into other asset such as property instead of parking it in the bank, which can exacerbate price pressures, said Cui Yong, an economist with GF Securities in Beijing. Cui expects China’s central bank to raise rates once more this year.
Sources: Shanghai Daily, Reuters and GEI News
