Pork prices propel rise in inflation

Housewives compare prices every day, including Zhang Ming, a 60-year-old retired woman who frequents a supermarket in Beijing's Fengtai district.

On Sunday morning, she spent 45 yuan ($7.30) on 1 kg of pork fillet. "It's amazing considering that it wouldn't have cost 35 yuan just a couple of months ago," she said.

The National Bureau of Statistics said that last month the average price for pork in China shot up by 16.7 percent year-on-year, along with a price increase of 10.5 percent for all vegetables.

Pork and vegetables are the two major factors that have taken the nation's consumer inflation to a nine-month high, the bureau said.

Driven by food items, China's consumer price index, its general gauge of inflation, saw a year-on-year rise of 1.6 percent last month, compared with an increase of 1.4 percent in June, and with a very low level of 1.3 percent reported in the first half of the year.

Meanwhile, business managers, apart from those in the food industry, continue to agonize about the deflationary pressure they are facing.

Industries' factory-gate prices, as measured by the producer price index, have recorded their lowest reading since October 2009－the 40th straight month of declines.

More alarmingly, the trend has worsened. The index was down by 5.4 percent from a year earlier last month, after falling by 4.8 percent in June and by 4.6 percent in May.

Deflation in nonfood sectors, caused by subdued commodity prices, industrial overcapacity and weak demand, may signal continuing difficulty in the nation's economic growth in the second half of the year, economists said.

Some of them predict that deflation may cause GDP growth to fall below the government's 2015 target of 7 percent year-on-year.

This target was just achieved in the first half, but economists also speculate that, due to food-driven consumer inflation, policymakers may hesitate on further monetary easing.

Zhao Yang, chief China economist at Nomura Securities, said that fueling growth, or fighting industrial deflation, should be the government's priority. "It is a more important task than controlling consumer inflation.

"The government will have to spend more on building public infrastructure to sustain growth," he said, and this would be more effective than simply enlarging the credit supply.

Wang Tao, chief China economist at UBS AG, said the People's Bank of China－the central bank－would try to maintain "an accommodative monetary environment" in order to inject more money into the real economy.

"But we don't see a pork-driven rebound in the CPI as an upcoming impediment to monetary easing, as the sluggish economy in general will likely prevent any undesirable surge in inflation," she said.

"Indeed, a modest degree of reflation at this stage would likely be welcomed to dispel deflationary pressures and stabilize China's debt cycle."

Government data also show that last month China's exports suffered a surprising net fall of 8.3 percent year-on-year.

The National Bureau of Statistics plans to release other major economic indicators on Wednesday, and economists are predicting a continued slide in real estate development and industrial output.