The consumer price index, a key gauge of inflation, will rise 1.7 percent year-on-year in July, slower than the 2.2-percent growth seen in June, the Bank of Communications and the Industrial Bank said in their monthly economic data forecast reports.
Both banks attributed the easing inflation to the base effect. The CPI growth rate hit a 37-month high of 6.5 percent in July last year before gradually retreating as China's economy slowed for eight quarters running.
The inflation rate will remain at around 2 percent throughout the third quarter if no new factors emerge to drive prices up, the financial research center of Bank of Communications projected.
Food prices, which account for nearly one-third of the prices used to calculate China's CPI, may stay flat in July compared with June, as rain and flooding affected vegetable production in many places in a traditionally peak season of supply, it said.
Non-food prices will increase about 0.1 percent in July from June on rising prices in transport, telecommunications, entertainment and housing, Industrial Bank noted in its report.
The central bank is likely to further reduce the reserve requirement ratio, the money that lenders should set aside in reserves, in August to shore up the softening economy, said Lu Zhengwei, chief economist with Industrial Bank.
China's central bank has cut the RRR three times since November. It also slashed benchmark interest rates for the first time since December 2008 in June and further reduced the rates earlier this month.
China manufacturing forecast july 2012
China’s manufacturing teetered on the edge of contraction in July and South Korea’s exports and inflation declined, indicating that stimulus efforts have yet to bear fruit.
The Purchasing Managers’ Index in China unexpectedly fell to 50.1 in July, the weakest in eight months, from 50.2 in June, a government report showed today. Fifty marks the dividing line between expansion and contraction. South Korea’s exports slid by more than double the amount forecast by analysts and inflation moderated to a 12-year low.
The data increase odds China and South Korea will add to interest-rate cuts in the coming months as a record-high jobless rate in the euro area drags on global growth. Leaders of China’s ruling Communist Party pledged yesterday to keep adjusting policies to ensure stable growth while signs of a revival in the housing market may improve chances of reversing the nation’s slowdown.
“It’s almost certain that there will be more loosening,” said Daniel Martin, Singapore-based Asia economist at Capital Economics Ltd. “The whole region is going to see fairly disappointing growth this year.” He sees at one more interest- rate cut in China and at least one more this year by South Korea.
The reading today from the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing and compares with the 50.5 median estimate in a Bloomberg News survey.
Three of 24 economists surveyed had forecast a decline in the gauge from June. The report showed indexes of output and new export orders were at the lowest levels since November, while a new orders gauge showed a contraction for a third month and employment declined. A reading on imports was the weakest since February 2009.
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