China’s headline inflation likely to have eased slightly in July

The food supply in China is expected to have been dampened by the severe floods in central and southern China and led to higher inflation. Nonetheless, price impact has been modest so far. In July, pork prices continued to fall. In the meantime, only certain vegetables have registered huge sequential price rises, unlike the widespread increase in prices in February because of bad weather, said Societe Generale in a research report.

Therefore, agricultural wholesale price index was up just slightly by 0.4 percent month-on-month in July. This suggests slight food CPI inflation. Furthermore, there is a negative base effect in July, according to Societe Generale. Moreover, administrative fuel prices were reduced as well in China.

“Overall, the headline yoy rate is expected to have softened fractionally to 1.8 percent in July from 1.9 percent in June”, added Societe Generale.

Meanwhile, China’s producer price index is expected to have rebounded further. Even if crude oil prices dropped, prices of metal trading and power coal rose last month. Overall, the producer price index is likely to have risen 0.1 percent on month-on-month basis, which is equal to a rebound in the year-on-year rate from -2.6 percent to -1.9 percent.