China's moderate CPI, PPI provide more leeway for policymakers

By Chu Daye Source:Global Times Published: 2018/8/9 20:08:40

China’s production sector unaffected by trade war

Moderate consumer price index (CPI) and producer price index (PPI) growth, despite inflationary pressure in some sectors, will provide more leeway for Chinese policymakers in coping with external uncertainties, reducing corporate debt and stimulating domestic demand, experts said on Thursday.

China's CPI, a main gauge of inflation, rose 2.1 percent year-on-year in July, compared with 1.9 percent in June, data from the National Bureau of Statistics (NBS) showed on Thursday. The figure had been below 2 percent from April to June.

China's PPI, which measures costs of goods at the factory gate, rose 4.6 percent year-on-year in July, down from 4.7 percent in June, the NBS said on the same day.

The CPI data has fueled concerns over inflation pressure.

IHS Markit expects that China's CPI will face mild upward pressure in the near term while retaliatory tariffs on US food imports will likely add to inflationary pressure.

However, such upward CPI pressure will be offset by a relatively high base effect in the second half, putting CPI on track to rise 2.3 percent year-on-year in 2018, well below the central bank's target of 3.0 percent.

Price rises for fuel, medical and healthcare, travel, education and living expenses were the major reasons for the CPI rise from June, said NBS statistician Sheng Guoqing.

Niu Li, director of the State Information Center's Macroeconomic Research Office, told the Global Times on Thursday that July CPI data and PPI data are better than expected.

"The CPI growth rate is slightly higher, due to price rises in services and sectors such as medicare and leisure, but the pickup is moderate," Niu said, noting that prices of goods have been kept at a low range in recent years and contribute less to CPI growth than that of services.

The July PPI growth rate slowed down a notch from a three-month rise from April to June. Month-on-month, producer prices edged up 0.1 percent in July, slower than the 0.3 percent rise in June.

IHS Markit said weakening external demand due to rising US-China trade hostilities will put downward pressure on the prices of industrial goods.

"PPI data was surprisingly unaffected by external factors in July and stayed in a high range, which shows that the trade war is yet to impact the Chinese production sector. This is in line with better-than-expected exports data released on Wednesday," Niu said.

The weakening PPI trend could be reversed when announced plans to boost infrastructure build-up on weak economic links and kick in during the second half, said Tang Jianwei, researcher with the Bank of Communications, adding that the moderate changes are set to give the central government more leeway for its monetary policies.

Newspaper headline: CPI, PPI stay moderate in July

Posted in: ECONOMY

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