China's inflation may see mild recovery in H2 as demand improves

BEIJING - China's inflation level, which held steady in the first half of this year, is expected to see a mild recovery in the coming months as demand continues to pick up, officials and economists have said.

Supported by price rebounds in pork and services, the consumer price index (CPI) is likely to rise slightly in the second half, while the producer price index (PPI) might be back to growth in the fourth quarter, they told Xinhua-run Shanghai Securities News.

The CPI went up 0.2 percent year-on-year last month, according to the National Bureau of Statistics (NBS). The PPI, which measures costs for goods at the factory gate, went down 0.8 percent in June, tapering from a 1.4 percent drop in May and a 2.5 percent decrease in April.

"The economy has generally been stable this year, with production and supply stably increasing, market demand continuing to recover and consumer prices held steady," said Wang Youjuan, an NBS official.

Wang noted several positive trends in consumer prices. The price of pork, a staple meat in China, has returned to year-on-year growth since April, while the prices of manufactured consumer goods gained 0.5 percent year-on-year in the first half, accelerating by 0.4 percentage points from the increase in the first quarter.

The core CPI, deducting food and energy prices, went up 0.7 percent year-on-year in the first six months, flat with the levels recorded in the first quarter and the same period last year, NBS data showed.

Bruce Pang, the Greater China chief economist of JLL, a real estate and investment management services firm, said the recovery trend in consumer prices has remained mild, and there is potential for a rebound in service prices as travel demand could rise during the upcoming holidays in the second half.

For producer prices, economists said the narrowing declines in previous months have reflected an improvement in supply and demand on the production side and might resume year-on-year growth after the third quarter.

"The easing of PPI declines showed that industrial supply and demand would be more balanced and that operation at industrial enterprises is getting better," said Zhou Maohua, an analyst with China Everbright Bank.

China's value-added industrial output, an important economic indicator, expanded 5.3 percent year-on-year in June, according to NBS data.

Tu Qiang, a senior analyst at SWS Research, said with further policy support for carbon peaking and carbon neutrality to push up upstream prices, he expected the PPI to be back on the growing track in November.

Despite the upward trend, there are still challenges and more efforts are needed on the policy front to bolster domestic demand and support price rebounds, according to the experts.

The country's retail sales of consumer goods went up 3.7 percent year-on-year in the first half on the back of pro-consumption policies.

Zhang Bin, deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, suggested that interest rate adjustments should be determined by domestic economic fundamentals, and fiscal spending should be further boosted to improve the earnings of businesses and residents.

Liu Aihua, a spokesperson with the NBS, said the implementation of China's new round of large-scale equipment upgrades and trade-in of consumer goods would provide support for the prices in certain industries.

Driven by equipment renewal and goods trade-in program, investment in purchasing equipment, tools and instruments in the first half jumped 17.3 percent year-on-year, while retail sales of electric appliances as well as audio and video equipment at large sellers increased 3.1 percent year-on-year, NBS data showed.