Chinese inflation accelerated to 2.7 percent last month, official data showed yesterday, but analysts cautioned demand remained weak and growth in the world’s second-largest economy may have slowed further.
The year-on-year figure for the consumer price index (CPI) was up from 2.1 percent in May, China’s National Bureau of Statistics said in a statement.
It was higher than market expectations of 2.5 percent in a poll of 18 economists by Dow Jones Newswires.
Food price increases hit an annual 4.9 percent last month and remained the main driving force of inflation, the bureau said.
China has set its inflation target for the year at 3.5 percent, much higher than last year’s 2.6 percent.
“Inflation is not a concern yet... and inflationary pressure is mild and under control,” said Sun Junwei (孫君瑋), a Beijing-based economist with HSBC.
The Chinese economy grew only 7.8 percent last year, its slowest annual pace in 13 years, while it expanded 7.7 percent in the first three months of this year.
Analysts expect growth in the second quarter to slow further on weak domestic and foreign demand, as well as Beijing’s determination to carry out reforms to reduce the country’s reliance on investment and exports.
They said that threats to economic growth have increased after a credit squeeze last month, when the interest rates banks charge each other surged to record highs, reflecting the government’s reluctance to loosen monetary policy.
A purchasing managers’ index for China by British bank HSBC, which tracks manufacturing activity in factories and is a closely watched gauge of the health of the economy, hit a nine-month low of 48.2 last month, indicating further contraction.
“The recently released data showed that [growth in] the second quarter was no better than the first quarter and a slowing trend has apparently continued,” Sun said.
China’s producer price index, which measures the costs of goods as they leave factories, fell 2.7 percent year-on-year last month, its 16th straight month in negative territory, data from the bureau showed.
“Of raw material purchasing prices, metals and power dropped sharply, showing that domestic demand remains weak and heavy industry still faces pressure to destock,” economists with China International Capital Corp said in a research note.
In the first half of the year CPI came in at 2.4 percent from the same period last year, the bureau said.
Bank of America Merrill Lynch economists Lu Ting (陸挺) and Zhi Xiaojia expected authorities to keep monetary policy neutral with “neither easing nor tightening.”
“There will be no easing due to recognition of a slowdown in potential growth, the need for controlling debt growth and the task for taming rapidly [rising] home prices,” they said.
Authorities have kept their growth target for this year at a conservative 7.5 percent, the same aim as last year.