China inflation to slip below 2%

Thanks to stability in pork prices which was sustained into August.

According to Barclays, the CPI inflation is expected to bottom in July-August at below 2% before picking up to above 3% in Q4. A key to this outlook is stability in pork prices, which was sustained into August.

Here's more from Barclays:

Our 2.9% full-year inflation forecast already factors in a return to positive m/m changes in food prices in the coming months. In fact, both grain and vegetable prices have been increasing so far in August. But as we discussed in China: How big is the risk from rising food inflation, 20 July 2012, our study shows that a further 20-40% rise in global grain prices would be unlikely to lead to a meaningful "food event" in H2. Inflation, meanwhile, will be more of a concern next year, when we expect it to rise to ~4.5% by mid-2013 (full-year: 4%).

the CPI inflation fell below 2% in July, though it came in slightly higher than expected at 1.8% y/y. Food inflation was broadly on track, slowing to 2.4% y/y from 3.8% in June. Non-food inflation edged up to 1.5% y/y (June: 1.4%), driven by a pickup in housing costs, which reflects the recent rebound in property prices. According to the NBS, base effects contributed 0.9pp to headline inflation (1.4pp in June) while new inflation contributed 0.9pp (0.8pp in June).

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