Deflation risks fading: CICC

China has passed its peak of deflation and commodity prices are poised to bounce back, a major Chinese investment firm has said.

Deflation pressure reduced significantly in the second quarter of 2015 thanks to real estate price increases and inflation in the service sector, according to a new report by China International Capital Corporation (CICC).

The GDP deflator, a common gauge of pricing, rose from a negative 1.1 percent in the first quarter to 0.1 percent in the second quarter, signifying the economy has stepped out of a deflation trap.

Rising prices in retail, real estate and the financial industry have led the reflation of the service sector, which was the main engine that drove China's 7-percent GDP growth in the second quarter.

Easing monetary measures and a decrease in real interest rates contributed to the reflation, according to CICC, which predicted that the trend would continue to push up demand in the second half of the year, especially in real estate.

Prices of commodities in good supply will rebound first as demand recovers, and that may partly account for the recent pork price surge, CICC said.

The company revised its estimated consumer price index (CPI) for the third and fourth quarter to 1.9 percent and 2.2 percent respectively from the previous 1.4 percent and 1.6 percent.

The CPI was up 1.4 percent from one year earlier in June and rose 1.3 percent in the first half of the year, according to the National Bureau of Statistics.

Still, deflation may be a concern in manufacturing as energy prices tumble and global commodity prices slump. The producer price index, which has fallen for 40 straight months, will slide by another 4.6 percent in the third quarter and 2.9 percent in the fourth, CICC forecast. Endi