China annual inflation picks up to 2.7%

Chinese inflation accelerated to 2.7% in June, official data showed on Tuesday, but analysts cautioned demand remained weak and growth in the world's second-largest economy may have slowed further.

A customer buys fruit at a market in Shanghai, on June 9, 2013. China's annual inflation accelerated to 2.7 percent in June, up from 2.1 percent in the previous month, according to the latest official data.

The year-on-year figure for the consumer price index (CPI) -- a main gauge of inflation -- was up from 2.1% in May, the National Bureau of Statistics (NBS) said in a statement.

It was higher than market expectations of 2.5% in a poll of 18 economists by Dow Jones Newswires.

Food price increases hit an annual 4.9% in June and remained the main driving force of inflation, according to the NBS.

China has set its inflation target for 2013 at 3.5%, much higher than last year's actual rate of 2.6%.

"Inflation is not a concern yet... and inflationary pressure is mild and under control," Sun Junwei, a Beijing-based economist with HSBC, told AFP.

The Chinese economy grew only 7.8% in 2012, its slowest annual pace in 13 years while it expanded 7.7% in the first three months of this year.

Analysts expect growth in the second quarter to slow further on weak domestic and foreign demand, as well as Beijing's determination to carry out reforms to reduce the country's reliance on investment and exports.

Threats to economic growth have increased, they say, after a credit squeeze last month, when the interest rates banks charge each other surged to record highs, reflecting the government's reluctance to loosen monetary policy.

A purchasing managers' index for China by British bank HSBC, which tracks manufacturing activity in factories and is a closely watched gauge of the health of the economy, hit a nine-month low of 48.2 in June, indicating further contraction.

"The recently released data showed that (growth in) the second quarter was no better than the first quarter and a slowing trend has apparently continued," Sun said.

China's producer price index (PPI), which measures the costs of goods as they leave factories, fell 2.7% year-on-year in June, its 16th straight month in negative territory, NBS data showed.

"Of raw material purchasing prices, metals and power dropped sharply, showing that domestic demand remains weak and heavy industry still faces pressure to destock," said economists with China International Capital Corporation in a research note.

In the first half of the year CPI came in at 2.4% from the same period in 2012, the NBS said.

Bank of America Merrill Lynch economists Lu Ting and Zhi Xiaojia expected authorities to keep monetary policy neutral with "neither easing nor tightening".

"There will be no easing due to recognition of a slowdown in potential growth, the need for controlling debt growth and the task for taming rapidly (rising) home prices," they said.

Authorities have kept their growth target for this year at a conservative 7.5%, the same aim as 2012.

The government is due to release data on gross domestic products for the second quarter on Monday.

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