China’s CPI growth expected to fall below 2 percent in July

China’s inflation rate is likely to ease further in July, experts said ahead of a string of economic data scheduled to be released Thursday.

The consumer price index (CPI), a major gauge of inflation, is estimated to grow by 1.7 percent year on year in July, slower than the 2.2-percent growth seen in June, the Industrial Bank said in a report, citing the slowing economy and a high comparative base from last year.

Food prices, which account for nearly one-third of the prices used to calculate China’s CPI, are expected to stay flat in July, as a good domestic harvest in the first half is predicted to offset possible imported inflation.

Soybean and corn price hikes caused by an ongoing drought in the United States, the world’s largest grain producer and exporter, will have limited effect on grain prices in China, as the country may increase its grain imports from Brazil and Ukraine.

Experts said the ultimate impact of the U.S. drought on the global food market still depend on harvests in South America, urging regulators to guard against rapid fluctuations in grain prices.

The U.S. grain price jump may also result in rising prices for stock feed, but it is unlikely to drive up the domestic price of pork immediately.

The price of pork, which was a major contributor to food inflation in China last year, has been declining since the fourth quarter of 2011.

Severe weather conditions this season may also raise the wholesale prices of farm produce. Experts warned of price volatility caused by reduced production and surging transportation costs, as heavy downpours and typhoons have swept many areas of the country since July.

In addition, the growth of industrial value-added, fixed-asset investment and retail sales are expected to rebound slightly in July, but will remain weak for several months ahead, as the fine-tuning of government policies may not show an effect until the third quarter.

Government reforms designed to reduce the overall tax burden and balance the country’s economic structure will also have an effect on the market during the second half. The reforms are expected to be unveiled during the next executive meeting of China’s cabinet, the State Council.

The government rolled out a series of measures in the first half of 2012 to maintain stable growth, including cutting the benchmark interest rate twice over the past two months.

The State Council on July 25 announced that it would expand a value-added tax reform program piloted in Shanghai to cover 10 additional provinces and cities starting Aug. 1.


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