Annual consumer inflation in China accelerated more than expected in June, but deflation to persist factory gates for the sixteenth straight month, underscoring the political dilemma facing the Bank of China, concerned about the risks of long-term prices even if economic growth slows.
Analysts believe that the central bank will maintain its policy of neutrality in the short term to balance the need of having the second largest economy on an even keel, while keeping inflation at bay and possible housing bubbles.
"We believe the main inflation data will not change monetary policy. Did not think the central bank will raise or cut interest rates within this year," said Li Wei, an economist at Standard Chartered Bank in Shanghai.
The National Bureau of Statistics said annual consumer inflation accelerated to 2.7% in June from 2.1% in May.
The main inflation figure is still below the government's target of 3.5 percent, and is also lower than the benchmark rate of one-year deposit of 3 percent.
Food prices jumped 4.9 percent in June from a year earlier, accelerating from the 3.2 percent rise in May. Pork prices gained 1.1 percent year on year compared with a fall of 4.9 percent in May.
Although inflation may remain benign in the coming months in the absence of an economic recovery, the central bank is concerned about the risks of long-term inflation could complicate policy, especially as property prices continue to rise.
The data "reduce the likelihood of a cut in interest rates this year and that is not a good political background to have," said Kevin Lai, economist at Daiwa in Hong Kong.
"But I think that inflation will ease later this year because the demand is not going to be strong," he added.
The office also said that China's producer prices fell 2.7 percent last month from a year earlier - the sixteenth consecutive month of deflation, compared with a decline of 2.9 percent in May.
may be may be...but surely isn't the time to cut rates there.
Your timing to cut rates is an american one by a FED without recognizing your energy inflation down the road.
Let this small cup alone. Wait and see. They took a "bad credit"just a few days before Ben speech and after that your fuqy rate climb above 2,5% (1% in less than two months...).
The "south"often talks with Ben and perfectly knowing he's looking for a rate near 2,5% to stay quiet.
let us see...
and agree with this Reuters article: not the time to cut right now.