MNI DATA ANALYSIS:China Higher CPI Limits Easing; PPI Negative

     BEIJING (MNI) - China's inflation rose in July as food prices gained, while

ex-factory prices fell to deflationary zone on high base effect. Further

monetary easing is constraint by recent price pressures, according to

economists.

     CPI rose to 2.8% y/y compared with 2.7% in June, the highest in 17 months,

data released by the National Bureau of Statistics showed. An MNI forecast

called for 2.7%. PPI fell 0.3% y/y from June's 0.0%, the lowest level since

August 2016, worsen than -0.1% forecast by MNI.

     --UNSUSTAINABLE "DEFLATION"

     Though PPI had negative growth for the first time in three years,

economists remain cautious about calling it a factory-gate deflation only based

on the monthly data.

     The negative PPI was mainly due to the high base in the same period last

year, Deng Haiqing, chief economist at WallstreetCN, said in a report. Deng

doesn't see a long-term downward trend of PPI, as the prices of industrial

products didn't fall.

     The base effect is expected to continue to pressure down the headline PPI

in Q3.

     --LONGER INFLATION

     The high inflation was still mainly caused by higher food prices, which

rose 9.1% y/y. The price of pork continued to accelerate by 27% y/y, compared to

June's 21.1%, while fruit prices adjusted to 39.1% from June's 42.7%, mainly

helped by increased seasonal supply. These two categories drove up the headline

CPI by 1.22 pps.

     Pork prices are expected to keep pushing CPI, while the prices of vegetable

and fruits may not decline as quickly as the market expects. In this case, CPI

may persist at the current high level for a longer period, or even break the

government's 3% ceiling, Deng said, noting that the low base in Q4 last year

might also lead to higher reading of CPI.

     Deng also noted that the depreciation of yuan against the U.S. dollar could

bring input inflation by increasing prices of import and export products, which

could marginally push CPI higher. 

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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