China Low Inflation to Pressure Central Bank

China’s consumer inflation rate hit its highest level this year in July, but is still well below the government target of about 3%.

The rate edged up to 1.6% from 1.4% the month before because of rising food prices, the government said.

Producer prices, which include wholesale and factory price inflation, fell for the 40th month in a row.

Analysts say the data points to the need for measures to stimulate the world’s second-largest economy.

The producer price index was down 5.4% from a year earlier – it had been expected to fall by just 5% in July.

China’s central bank has cut interest rates four times since November last year in an effort to boost economic activity. But Zhou Hao, economist at Commerzbank in Singapore, said it would probably need to do so again.

“Policy focus is definitely the [producer] deflation at this stage,” he added.

Figures published earlier this month indicate that the Chinese economy grew by 7% in the April-to-June period, the same as in the first three months of the year.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza