Analysts expect inflation to cross 3% in the next two months even as domestic demand remains weak. Image Credit: AFP

Shanghai: China’s consumer inflation accelerated in July to the highest level in two years. The consumer price index rose 2.7 per cent last month from a year earlier, National Bureau of Statistics data show. The pickup in CPI was lower than the 2.9 per cent median estimate in a Bloomberg survey of economists and compares with 2.5 per cent growth in June.

Producer price inflation, meanwhile, slowed to 4.2 per cent in July from 6.1 per cent in June as commodity prices weakened. In contrast to the US and other major economies, consumer inflation in China has been relatively subdued this year as strict Covid control policies and sporadic outbreaks curbed consumer and business spending. Those virus flare-ups - along with global headwinds and an ongoing real estate crisis - have kept China’s economic recovery fragile, with factory activity unexpectedly contracting last month and property sales continuing to shrink.

“Inflation will likely rise past 3 per cent in the next two months, due to a low base,” said Bruce Pang, head of research and chief economist at Jones Lang LaSalle Inc. “But core inflation will likely stay benign as domestic demand remains weak. This won’t cause much restriction to the monetary policy.”

Food prices bite

July’s inflation uptick was largely driven by gains in the price of fresh vegetables and other foods, along with seasonal factors, the NBS said in an accompanying statement, citing senior statistician Dong Lijuan. Overall food prices rose 6.3 per cent in July from a year ago. Fresh fruits and vegetables surged 16.9 per cent and 12.9 per cent, respectively, from a year ago.