People buy vegetables at a supermarket in Hengshui City, north China's Hebei Province, Aug. 8, 2015. China's consumer price index (CPI), the main gauge of inflation, rose by 1.6 percent year on year in July, the highest level since 2015, the State Bureau of Statistics announced on Aug. 9. (Photo: Xinhua/Mou Yu)
An increase in the price of pork propelled China's consumer prices in July to their highest level this year, while deflation risks in industrial production loomed larger, official data showed on Sunday.
Analysts said China's inflation is and will be subdued, and they ruled out the likelihood of government actions to drain liquidity from the market.
The National Bureau of Statistics (NBS) said China's consumer price index (CPI) rose 1.6 percent in July. The index, which has been below 2 percent for 11 months in a row amid an economic slowdown, hit its highest level in 2015.
The CPI has risen over the last few months, mainly on the back of a surge in pork prices, according to senior NBS statistician Yu Qiumei.
The price of the staple meat in China is one of the most important factors the NBS considers when formulating the CPI. Prices climbed sharply by 16.7 percent in July.
China's inflation has entered a "pork price cycle." Before the price increase, pork prices had continuously declined over the past two years, hitting the profits of pig farmers who, in order to mitigate losses, cut down on the number of livestock they raised.
The Ministry of Agriculture predicted that pork demand will slightly exceed supply in the coming months. It said meat prices will continue to rise, but growth will be moderate.
The Ministry of Commerce (MOC) played down the price rise, calling it a normal market correction.
"The recent rise is a correction of the sharp price declines in the past two years," said MOC spokesman Shen Danyang, adding that the ministry will keep tabs on the market and work to stabilize the pork supply.
Zhang Jun, head of macroeconomic research with Morgan Stanley Huaxin Securities, said CPI growth will top 2.5 percent or even approach 3 percent at the end of the year.
"Annual growth will probably stand between 1.8 and 2 percent," Zhang said. The Chinese government aims to keep consumer inflation at around 3 percent for 2015.
Lian Ping, chief economist with the Bank of Communications, predicted consumer inflation in the world's second largest economy will be milder.
"The CPI growth will fluctuate between 1.5 and 2 percent in the second half, and the annual expansion will be around 1.5 percent," said the economist.
