CPI to Drop in H2, No Need for Interest Rate Hike: Economists

The year-on-year 3.3 percent increase in CPI for July is moderate, compared with the forecasted GDP growth of 9 percent for the whole year.

China’s inflation pressures may ease as the role of short-term factors which have driven up the consumer price index by 3.3 percent year-on-year in July, is weakening in the next half of the year, according to economists.

The hike of CPI, a main gauge of inflation, is “tolerable” and is expected to drop in the next half, said Zuo Xiaolei, a senior economist at China Galaxy Securities.

Short-term factors, including tail-raising and seasonal factors, mainly contributed to the CPI’s hike in July, said Zuo Xiaolei.

Tail-raising factor reached its peak in July, while food prices soar as recent natural disasters have led to a reduction of imported vegetables.

Chief Economist Lian Ping from the Bank of Communication added that the indicator will rise and peak in July and August due to a low base of last year. “On a yearly basis, CPI will turn lower in these two months,” he said.

“Prices would not decline sharply”, however, Lian Ping warned, noting the pressure of structural inflation in the future. In a long term, the hike of service prices due to wage rises, pork prices, food prices, which are expected to gain 10-15 percent growth this year, as well as oil and commodity prices will all add to upside risks to inflation, he explained.

Meanwhile, referring to a call for interest rate hicke, Lian Ping says there is no need for China to raise interest rate to ward off inflation, at least not under current economic condition.

The growth of CPI is moderate compared with 9 percent growth in GDP, he said.