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Decline in food costs may damp inflation

Shanghai Daily, August 30, 2011

China's?inflation may have reached its peak in July because consumer prices may moderate in August due to an expected fall in food costs, according to analysts.

The Consumer Price Index, the main gauge of inflation, may rise between 5.9 percent and 6.2 percent this month from a year earlier, slower than the pace of 6.5 percent in July, which was a 37-month high.

Lu Zhengwei, chief economist at the Industrial Bank, said the moderation will come from a slower rise in food costs. Lu forecast a CPI rise of 6.1 percent for August.

"Market jitters about inflation have been easing as several measures launched to curb prices take effect," Lu said.

"July's inflation data will be the peak for this year."

Essence Securities Co expected this month's inflation to slow to 5.9 percent as food costs may decrease month on month.

But the research unit at the Industrial and Commercial Bank of China said in a note that consumer prices may jump 6 percent on an annual basis in August due to unabated imported inflationary pressure.

"Prices of commodities remain high on global markets," the note said. "Because of the risks that the United States will continue its loose monetary policy, the imported inflationary pressure for China is hard to get rid of in the short term."

But pork prices, which "kidnapped" July's inflation rate, showed signs of rebounding in the week before last. The Ministry of Commerce said pork prices rose 0.1 percent between August 15 and August 21 from a week earlier, triggering uncertainties.