China July CPI and PPI Show Stable Gains; End M/M Declines

     BEIJING (MNI) - Consumer prices and factory inflation in China showed

stable growth in July despite falling below expectations, with month-on-month

gains for both putting an end to consecutive m/m declines, data released by the

National Bureau of Statistics (NBS) on Wednesday show.

     Consumer Price Index

     The consumer price index (CPI), which gauges consumer price inflation,

gained 1.4% y/y in July, lower than the 1.5% growth in both May and June but

below the 1.6% median projection by analysts in an MNI survey. July growth was

still at a relatively low point compared with the y/y inflation rates of 1.9% to

2.5% that occurred from September to January, before a significant decline to

0.8% growth in February.

     In the January-July period, the CPI rose 1.4% y/y on average, according to

the NBS.

     On a monthly basis, the CPI rose 0.1%, reversing the m/m drops of 0.2% in

June and 0.1% in May, and flat with April's 0.1% growth -- which was the highest

m/m growth level since the 1.0% rise in January.

     The CPI y/y growth was boosted by a 2.0% hike in non-food prices, while

food prices declined 1.1%, according to the NBS data. Among non-food categories,

healthcare reported the highest gain at 5.5% y/y, followed by 2.5% hikes in the

prices of housing as well as education/entertainment. Costs of garments; other

goods and services; and necessities and services rose 1.4%, 1.3% and 1.1% y/y,

respectively. The y/y drop in food prices was the sixth consecutive decline.

     On a m/m basis, non-food prices rose 0.2%. Costs of education and

entertainment; healthcare; housing; and necessities and services climbed 1.0%,

0.5%, 0.1% and 0.1%, respectively.

     As the number of Chinese travelers surge during the summer holidays when

students are on school break, prices of flight tickets and travel agency fees

continued to climb, by 10.5% and 6.1%, respectively, Sheng Guoqing, senior

statistician at the NBS, said in a separate statement.

     Food prices dipped 0.1% m/m, compared with the 1.0% drop in June. Vegetable

prices increased 7.0% after a five-month drop due to hot weather and heavy

rainfall in some regions, while egg prices increased due to a lower laying rate

and higher storage and transportation costs, Sheng said.

     China Industrial Bank Research said in a note Wednesday that the "weak" y/y

growth of CPI show that China's domestic demand is not strong enough, and that

the so-called "new cycle of China's economic growth" has not arrived yet.

     Deng Haiqing, chief economist at JZ Securities, said in a note that

inflation remained at a relatively mild level, where he said it would likely

stay the rest of the year. 

     Producer Price Index

     The PPI in July accelerated 5.5% y/y, matching the levels of the previous

two months but lower than the 5.6% median expectation in an MNI survey of

financial institutions and economists.

     The index rose 0.2% m/m in July, reversing declines in the previous three

months.

     The PPI y/y growth was due to price increases in six industries, which

accounted for 80% of the total growth. Prices in coal mining and washing rose

fastest at 32.3%; prices of ferrous metal smelting and flattening were up 27.5%;

prices of non-ferrous smelting and flattening grew 12.7%; and petroleum

processing prices rose 10.9%.

     On a monthly basis, the PPI hike was boosted by surging prices of steel and

non-ferrous metal products, Sheng of the NBS said. Prices of ferrous metal

smelting and flattening rose 2.7%, non-ferrous metal smelting and flattening

rose 1.5% and chemical fiber manufacturing climbed 1.4%.

     Deng of JZ Securities pointed out that the flat growth of the PPI was only

a "halftime break," owing to a lower base last July. He said PPI rates would

decelerate after September because of higher bases in the same periods last

year. PPI growth at the end of the year could be as low as 2%, he said.

     China Industrial Bank Research said the lower-than-expected PPI was due to

friction between the supply side, which has been dampened, and the demand side,

which remains strong. Investment in the property sector also remains strong, the

research team said,  but steel producers have not reported obvious growth,

leading to price increases of steel.

     It also noted that it expected the PPI to be lower in the second half of

the year.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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