CHINA posted mild consumer inflation Saturday, well below the annual target in July, giving authorities room to further relax monetary policy, but deflationary pressure for producers remained stubborn, highlighting a wobbly economic rebound.

    Data from the National Bureau of Statistics (NBS) showed that the consumer price index (CPI) held steady at 2.3 percent year on year in July, while the producer price index (PPI) fell 0.9 percent for the 29th consecutive month.

    Both indicators matched analyst forecasts.

    Analysts attributed the steady CPI to slides in prices for fresh fruit and vegetables, which offset rises in other categories.

    “In general, China’s inflation outlook remains mild. However, the deflation risks may even rise in the foreseeable future if the growth momentum weakens again,” ANZ economists Liu Ligang and Zhou Hao said in a research note, reacting to the data.

    “Against this backdrop, the central bank should maintain an accommodative bias in the monetary policy stance.”

    Ma Zihui, researcher at Huarong Securities in Beijing, said the slide in the PPI was “not a good message.”

    “July macroeconomic data might come out worse than some people expected,” he said.

    The NBS said on its website that the slowing pace of declines in PPI in recent months — after plummeting a startling 2.3 percent in March — suggested a nascent recovery in industrial demand could be getting underway.

    Consistently mild inflation in 2014 has given the government considerable leeway to ease up on liquidity taps, and it has experimented with a variety of measures intended to support growth without reinflating asset bubbles.

    But economists are divided as to how effective efforts have been. While exports and manufacturing activity produced positive surprises in July, import and services data suggest fundamental domestic demand remains subdued.

    “The PPI year-on-year decline narrowed thanks to stabilization policies supporting economic recovery,” said Li Huiyong, macroeconomic analyst at Shenyin Wanguo.

    “But it should be noted that industrial overcapacity has not been completely digested, it’s only been phased out of the market. As consumer prices recover, more production capacity will be gradually released, so I’m not optimistic about a rebound in PPI.”

    Regulators have hoped that a cocktail of targeted stimulative ingredients will ultimately juice investment in the real economy and, by extension, consumer demand.

    These initiatives have the advantage of being both flexible and easily reversible, unlike a cut to bank reserve requirement ratios, which would pour long-term cash into the base money supply. (SD-Agencies)