China's consumer price index (CPI) in June is estimated to rise 7.2 percent, while the second-quarter economic growth will stay healthy at above 10 percent, a JPMorgan director said.

Jing Ulrich, managing director and chairman of China equities, says that the inflation rate probably moderating further in June - from May's 7.7 percent - as food prices have peaked and should stabilize in the short term.

"Inflation will stay high in the second half of the year, driven by non-food categories, including materials, wages and monetary expansion," Ulrich said after a luncheon organized by the American Chamber of Commerce in Hong Kong.

She estimates that the producer price index (PPI) in June will go even higher from May's 8.2 percent growth because of higher prices for oil, coal and steel.

China's benchmark CPI reached a 12-year peak in April, rising 8.5 percent before moderating to 7.7 percent in May due to the rising food prices, excess liquidity fueled by speculative inflows and renminbi appreciation.

Beijing has emphasized the fight against inflation as a top priority, but a number of government economists have begun stressing the need to avoid taking steps that could lead to a serious slowdown in growth.

Ulrich estimates that the second-quarter GDP growth was at a healthy 10.3 percent, down slightly from 10.6 percent in the first quarter as June exports dipped amid the global economic slowdown.

"However, the strong demand from emerging markets such as Brazil, the Middle East and India has offset some of the impact of the global slowdown," she added.

In the face of inflationary pressure, Ulrich believes that China will continue to maintain a tight monetary stance while working to support the country's economic growth.

She said the People's Bank of China may raise the reserve requirement for Chinese banks again.

But China, she said, is likely to follow the US if the Fed raises interest rates, indicating an end to the rate-reduction cycle. Meanwhile, renminbi is only expected to appreciate at a mild rate to prevent further cost pressure on the export sector.

As the PPI hasn't grown at the same pace of the CPI in the past few months, there is enormous pressure on manufacturers with squeezed margins.

Ulrich said that China may raise refined-oil prices again by the end of the year given the big gap between global and domestic oil prices.

The CPI figure for June is scheduled to be officially released today, along with a series of headline indicators, including the second-quarter GDP.

(HK Edition 07/17/2008 page2)