(Yicai) Aug. 9 -- China’s consumer price index, which is a gauge of inflation, slumped in July for the first time in 28 months, despite the high baseline last year. But it should recover by the end of the year as the economy gets back on track, an official at the National Bureau of Statistics said.

Last month, the CPI dipped 0.3 percent year on year, according to data released by the NBS today. This is a slowdown from June, when inflation remained flat with the same month last year. Month on month, consumer inflation gained 0.2 percent in July, which is an improvement on June’s 0.2 percent dip.

And the core CPI, which excludes food and energy prices, climbed 0.8 percent year on year, a gain of 0.4 percentage point from June.

Consumer prices will gradually bounce back as China’s economy recovers, demand expands and the supply-demand balance improves, said Dong Lijuan, a senior statistician at the NBS’ urban department. The impact from the high baseline last year should also gradually fade away.

The fact that China’s macroeconomy is steadily recovering and M2 broad money supply is growing quickly is not in line with typical deflation, Liu Guoqiang, vice governor of the People Bank of China, said recently. At present there is no deflation and there is no risk of deflation in the second half, he added.

The CPI should start to rise from next month to reach around 1 percent by the end of the year as commodity prices increase, Liu said.

Consumer inflation in the third quarter will still be affected by tumbling pork prices, said Bruce Pang, JLL’s China Chief Economist and Head of Research. Last month, the price of pork slumped 26 percent, a substantial widening of June’s 7.2 percent drop.

The recent roll out of policies aimed to boost consumption will hedge against structural factors such as sluggish spending, slow recovery in services consumption as well as a depressed real estate sector, Pang said. As spending power improves, the core CPI should remain stable and even recover.

Factory Prices

The decline in China’s producer price index, which is a measure of industrial profits, is slowing as demand improves in some sectors and international commodity prices stay high.

The PPI slumped 4.4 percent in July from the same period last year, a narrowing of 1 percentage point from June’s slide. Month on month, it dipped 0.2 percent, much less than June’s 0.8 percent drop.

The PPI is likely to rebound in the second half, buoyed by the disappearance of last year’s high base line and as supportive policies take effect. International commodity prices will probably come down, demand will pick up and real estate investment will improve, said a team led by China Minsheng Bank’s chief economist.

The PPI for the year will likely drop 3 percent year on year, a narrowing of 0.1 percentage point from the fall in the first half, they said.

Editors: Xu Wei, Kim Taylor