Asia Economy

China's inflation rate quickens on higher pork prices

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China's consumer inflation quickened in August, spurred by runaway pork prices, while producer prices slipped deeper into deflation, data showed on Thursday.

China's consumer price index (CPI) rose 2 percent in August from a year earlier, against expectations for a 1.8 percent rise from a Reuters poll and following July's 1.6 percent gain.

The producer price index (PPI) fell 5.9 percent, compared with an expected 5.5 percent drop and after a 5.4 percent decline in the previous month. This marks the 42nd consecutive month of declines.

Consumer prices in China have been fueled by rising food costs, in particular pork prices, which rose 19.6 percent on year in August amid a supply crunch, according to ANZ.

"While the headline CPI may rise modestly owing to surging pork prices, the underlying inflation, excluding pork, should remain subdued," Li-Gang Liu, chief China economist at ANZ said. "Meanwhile, the one-off currency devaluation in August will also have limited impact on China's CPI inflation."

On the wholesale front, inflation pressures are subdued as a result of low commodity prices and overcapacity across many sectors of the economy. This is unexpected to change in the near term, say economists.

"As PPI remains negative for over three years, China is still facing the risk of falling into deflation," Liu said.

China's recent economic indicators have heightened concerns around the health of its economy. August trade figures published earlier this week point to continued weakness in domestic demand. Imports plunged 13.8 percent on year, accelerating from July's 8.1 percent fall.

"We believe tepid domestic demand and uncertainties in global demand will continue to weigh on China's near-term growth outlook," said Jian Chang, chief China economist at Barclays.

Investors will be keeping a close eye on retail sales, industrial production and fixed asset investment data, due out on Sunday, for further insight into how growth momentum is faring.

Gross domestic product (GDP) growth is expected by some economists to slip below 7 percent in the third quarter – down from 7 percent in both the first and second quarter.

Over the weekend, China's Finance Minister Lou Jiwei said that the world's second largest economy had entered a "new normal" of slower growth, adding that a growth rate of around 7 percent was to be expected in the coming four to five years.