Xinhua reported that China inflation rate is likely to fall below 2% in July due to the base effect, giving authorities more room to beef up monetary supply to support growth.

The Bank of Communications and the Industrial Bank said in their monthly economic data forecast report that the consumer price index, a key gauge of inflation will rise 1.7%YoY in July slower than the 2.2% growth seen in June.

Both banks attributed the easing inflation to the base effect. The CPI growth rate hit a 37-month high of 6.5% in July last year before gradually retreating as China's economy slowed for eight quarters running.

The inflation rate will remain at around 2% throughout the third quarter if no new factors emerge to drive prices up, the financial research center of Bank of Communications projected.

It said food prices which account for nearly one-third of the prices used to calculate China CPI may stay flat in July compared with June, as rain and flooding affected vegetable production in many places in a traditionally peak season of supply.

Industrial Bank noted in its report said Non-food prices will increase about 0.1% in July from June on rising prices in transport, telecommunications, entertainment and housing.

Mr Lu Zhengwei chief economist with Industrial Bank said the central bank is likely to further reduce the reserve requirement ratio, the money that lenders should set aside in reserves, in August to shore up the softening economy.

Source - Xinhua

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