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Consumer prices in China slightly grew in July 2016

Consumer prices in China slightly grew in July 2016. The inflation in the second largest economy in the world reached 1.8% MoM, but losing momentum. This is the third consecutive month, when the CPI loses speed, remaining well below the recommendation of 3%, which the government targets this year. The low inflation is evidence of weak demand.

The inflation falls in July amid the slowdown in prices of vegetables, which rose by nearly 20% in the first half of the year. The price of pork, which rose by 28% during the first half of the year, jumped about 14% in July, despite threatening floods in China. The floods this year killed 200 people in 28 provinces and caused direct economic losses of over 147 billion CNY (22 billion USD). The provinces along the Yangtze River, which were directly affected by the floods, produce nearly 40% of the Chinese pork and nearly 60% of rice.

Another sign of continued weak growth are Chinese producer prices, which in June fell for the 53rd consecutive month. The producer prices decreased by 1.7% yoy, but gain momentum against June, when the drop was more significant – 2.6%. This is a slight decline than expected by economists.

While the growth has slowed this year, Beijing increased spending for infrastructure projects, reduce bureaucracy and maintain free monetary policy. The economists expect two reductions of 0.5% in terms of required banks capital reserves and drop of 0.25% on interest rates before the end of the year.

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