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China Reports 6.3% Rise in CPI in July

China's consumer price index (CPI), a measure of inflation, was up 6.3 percent in July, the National Bureau of Statistics announced on Tuesday.

The figure, compared with 7.1 percent in June and 7.7 percent in May, was broadly in line with most forecasts.

"The continuous decline of the CPI is a positive sign as it shows the government's measures to ease inflationary pressures were effective," said Zhang Xiaojing, an analyst with the Chinese Academy of Social Sciences.

Zhang attributed the decline to falling food prices and shrinking demand due to the economic slowdown.

Food prices, which account for more than a third of the CPI calculation, rose 14.4 percent in July, 2.9 percentage points lower than June and 6 percentage points lower than the growth for the first half.

The price of meat increased 16 percent, while that of pork rose 12.1 percent. Cooking oil went up 30.8 percent, vegetables up 8.4 percent, aquatic products up 18.3 percent and grains up 8.6 percent.

In the first seven months of this year, the inflation indicator rose 7.7 percent from the same period last year: 7.4 percent for urban areas and 8.3 percent for the countryside.

The PPI for industrial products was up 10 percent in July over the same period last year, the highest since 1996, the bureau said on Monday.

The PPI rise would not immediately increase pressure on the CPI, said Zhang Liqun, a researcher with the State Council Development and Research Center.

Xu Lianzhong, an analyst from the National Development and Reform Commission, predicted that the PPI rise in August would be moderate and the CPI was expected to continue to fall in coming months.

However, some analysts believe the upside inflation risks remain strong, as producer price growth has been accelerating. Many businesses are believed to have squeezed profit margins in recent months, as the CPI has failed to reflect the surge in production costs.

China's CPI figure was above 4 percent since June last year due to surging pork prices, reaching a 12-year-high of 8.7 percent in February.

"Although China is faced with less inflationary pressure, we still need to remain cautious of price fluctuations and give priority to curbing price hikes and preventing inflation," said Xu.

Xu said the government should raise subsidies for low-income families and personal income tax thresholds, and remove taxes on bank savings interest in order to stimulate domestic demand.

Sherman Chan, an analyst with Moody's Investors Service, said higher production efficiency could reduce business costs and slow inflation. The government could consider improving infrastructure and facilitating technology development, both of which would boost productivity without creating inflationary pressures. "There are policy options that can kill two birds with one stone."

Zhang said China's annual CPI growth target of 4.8 percent would be missed this year. However, given the downward adjustments, the average CPI rise in the fourth quarter could reasonably be expected to reach the desired rate.

(Xinhua News Agency August 12, 2008)

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