Room for policy maneuvering as CPI up 2.1%

China’s consumer inflation rose faster last month but remained benign, leaving room for monetary policy maneuvering.

The Consumer Price Index, a main gauge of inflation, climbed 2.1 percent from a year earlier in July, faster than the 1.9 percent year-on-year growth in June, the National Bureau of Statistics said yesterday. It was the highest level since March.

Sheng Guoqing, the bureau’s senior statistician, linked the higher inflation to a 2.4 percent rise in non-food prices that contributed 1.96 percentage points to CPI growth.

He highlighted strong demand for traveling during the summer vacation. Prices of air tickets, tours and hotel rooms rose 14.5 percent, 7.9 percent and 2.2 percent respectively month on month, the bureau’s data showed. They accounted for 0.19 percentage points of July’s 0.3 percent month-on-month CPI growth.

On a year-on-year basis, prices of the health care sector jumped 4.6 percent, and that of tourism, education services and residence increased 4.4 percent, 2.8 percent and 2.4 percent respectively. Higher prices in the four sectors led to the CPI rise by 1.16 percentage points.

Investment bank Nomura said the inflation rise was “mainly driven by non-food price increases, which were in turn driven by rising gasoline prices as a result of already high global crude oil prices.”

Gasoline and diesel prices surged 22.7 percent and 25.1 percent year on year in July, the statistics bureau’s data showed.

Food prices climbed 0.5 percent year on year to lift CPI growth by 0.1 percentage points, the bureau said. Prices of eggs, vegetables and fruits increased 12.7 percent, 3.8 percent and 0.4 percent respectively.

The price of pork, China’s staple meat, continued to slump in July, down 9.6 percent year on year, dragging down CPI growth by 0.24 percentage points. On a monthly basis, however, it registered a 2.9 percent jump, faster than the 1.1 percent increase in June.

Despite the recent rebound, the pork price will still drag down the annual CPI growth by 0.2 percentage points, China Merchants Securities estimates. The brokerage maintained its forecast that the monthly inflation rate will not exceed 3 percent this year, leaving room for monetary policy maneuvering.

Authorities have pledged to continue a prudent monetary policy in the second half of this year, while increasing support for the real economy.

China is aiming to keep annual CPI growth at around 3 percent this year, the same as the target for 2017. 

The average year-on-year CPI growth for the January-July period stood at 2 percent, according to the statistics bureau. The Producer Price Index, which measures costs of goods at the factory gate, rose 4.6 percent year on year, 0.1 percentage points lower than that in June.