China Consumer Inflation Unexpectedly Slower in July -- Update

China's consumer inflation slowed a notch in July, with softer non-food prices signaling that economic activity may be cooling as Beijing works to reduce debt levels.

China's consumer-price index rose 1.4% in July from a year ago, compared with a 1.5% gain in June, the National Bureau of Statistics said on Wednesday. The result was also lower than a 1.5% increase expected by economists polled by The Wall Street Journal.

Food prices, the biggest component of the consumer inflation index, declined 1.1% from the same time a year ago, less steeply than their 1.2% drop in June. Prices of vegetables and eggs rose, driven up by a widespread heat wave and flooding, the statistics bureau said.

Meanwhile, the rate of increase in the price of nonfood items fell to a seven-month low of 2.0% last month, as health care and services became less expensive, the bureau said.

The absence of price pressure means Beijing may have to look for levers other than raising key interest rates in its campaign to bring down high rates of corporate debt, some economist said.

"Overall, China's inflation pressure is ebbing. That's a sign that shows monetary policy cannot be tightened further," said Yang Weixiao, an economist at Founder Securities.

July's consumer inflationary rate is well below Beijing's 3% target set for 2017. Some economists said the rate still has room to fall, to around 1%, before affecting monetary policy.

Beijing has made reducing financial risk and leverage its priority this year. After securing a higher-than-expected economic growth rate in the first half, many economists expect the momentum to ebb in the second half of year as policy tightening dampens economic activity.

Mr. Yang said there will be a risk of deflation if China's monetary policy tightens more.

Meanwhile, China's producer-price index stayed unchanged at 5.5% for a third consecutive month in July, and turned positive in month-over-month terms for the first time since March.

After falling for nearly five years, China's producer-price index only turned positive last September. A decline of producer prices has burdened factories with shrinking profits and increasing debt.

While July's gain was the 11th in a row, the index is expected to sag in the months ahead amid slackening domestic demand and softening commodity prices, said Liu Xuezhi, an economist with Bank of Communications.

"With growth likely to slow further in the coming quarters, we think the pickup in price pressures witnessed during the past year will continue to unwind. This will disappoint those hoping for a sustained period of reflation that could help to erode corporate debt burdens," said Julian Evans-Pritchard, an economist with Capital Economics.

Grace Zhu and Liyan Qi contributed to this article.

(END) Dow Jones Newswires

August 09, 2017 01:48 ET (05:48 GMT)