Analysts at China International Capital Corp note that the Chinese economy may soon feel the impact of the global inflationary wave.
"Consumer prices in the country have been rising rapidly in recent months and it is likely that soon the price increase will exceed 3% per annum. If this forecast comes true, it will put even more pressure on the Chinese government, which is already trying to balance the fragile economic recovery," analysts said, adding that the CPI target is 3% per annum.
"If inflation exceeds the target, politicians will need to decide which problem should be solved first: reduce inflation or support economic growth. We believe that the priority for politicians will be economic growth, along with increased tolerance to inflation," China International Capital Corp. added.
According to the report from the National Bureau of Statistics (NBS), China's consumer price index (CPI) rose by its fastest annual pace in a year in June amid the volatile global energy costs and low base effect/ China's June CPI rose 2.5% year-on-year, expanding from 2.1% in May, but was unchanged month-on-month. Food prices rose 2.9% year-on-year in June, contributing about 0.51% to the CPI increase, while non-food prices gained 2.5%, contributing about 2.01% to the CPI increase. In particular, gasoline prices and diesel prices surged 33.4% and 36.3% from a year earlier.
CPI data for July will be published on Wednesday, at 01:30 GMT. Economists expect that the CPI increased by 2.9% per annum.