China’s consumer and producer inflation declined in August, according to Reuters

© Reuters FILE PHOTO: People walk along Nanjing Pedestrian Street, a major shopping area, in Shanghai, China, May 5, 2021. REUTERS/Aly Song/File Photo

BEIJING (Reuters) – China’s consumer prices rose faster than expected in August amid a heat wave and the outbreak of the Covid-19 outbreak, while producer price inflation fell to the lowest since February 2021, official data showed.

The Consumer Price Index (CPI) rose 2.5% year-on-year from 2.7% growth in July, data from the National Bureau of Statistics (NBS) showed on Friday. It missed analysts’ media forecasts for a 2.8% gain in a Reuters poll.

Producer prices rose 2.3% year-on-year in August, the slowest pace since February 2021, and below the 4.2% increase in July and a 3.1% gain forecast in the polls.

The world’s second-largest economy, weighed down by property market weakness and strict Covid-19 restrictions, lost even more momentum in August, according to the latest data.

While CPI inflation was close to the government’s target of 3.0%, it was still lower than the high inflation rates seen in other major economies.

The People’s Bank of China (PBC) warned in August that China’s structural inflation will continue to rise and CPI inflation may exceed 3 percent in some months in the second half of the year.

But analysts say rising consumer inflation could limit scope for further monetary policy easing in China.

“Potential financial risks (mortgage boycotts and rural banking scandals) may force the PBoC to remain accommodative, which is risk-friendly liquidity.” Barclay (LON:) in a research note.

“We think the central bank will prefer to use some low-profile and targeted policy easing tools, including relying on policy banks to increase lending and support credit growth.”

Food prices rose 6.1% year-on-year, down slightly from July’s 6.3% gain, while pork prices rose 22.4% after a 20.2% increase in July.

Hog prices in the world’s top pork producer have risen in recent months after a decline in breeding herds last year weighed on output.

The so-called core CPI, which strips out volatile food and energy prices, rose 0.8% from a year earlier, unchanged from July.

In August, China’s central bank cut a key interest rate to stimulate the faltering economy, cutting benchmark lending rates.

Chinese policymakers this week signaled a new sense of urgency to boost the flagging economy, saying the data will signal further economic growth in a crucial quarter.

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