SHANGHAI (Reuters) -China’s central bank governor Yi Gang said he expects the country’s annual average inflation to be below 2% this year, while cautioning against both inflationary and deflationary pressure amid economic and macro policy uncertainty. China will stick with implementing normal monetary policy, and will focus on the impact from structural changes on price stability, Yi told a financial forum in Shanghai. Consumer prices in China are trending higher this year, and the annual average inflation is expected to be below 2%, Yi said. “Of course, there are uncertainties in the overseas pandemic situation, economic recovery and macro policies, so we should be on alert toward both inflationary and deflationary pressure in many aspects,” Yi said. Data on Wednesday showed China’s May factory gate prices rose at their fastest annual pace in over 12 years due to surging commodity prices, highlighting global inflation pressures. Consumer prices rose 1.3% in May - the biggest year-on-year increase in eight months - but remained well below the government’s official target of around 3%. China will also actively use structural monetary policy tools to support the economy’s green transformation, Yi said. The central bank is trying to cool credit growth to help contain debt risks, but is treading warily to avoid hurting the economic recovery, which has been uneven. The potential growth rate of China’s economy is slowing, and future expansion must be driven by rising productivity and reforms, rather than investment of capital and labour, Yi said, citing an aging population. The central bank will keep the yuan exchange rate basically stable, while improving China’s exchange rate mechanism, Yi said, reaffirming the current stance. Reporting by Andrew Galbraith and Samuel Shen; Editing by Muralikumar Anantharaman and Ana Nicolaci da Costa Our Standards: The Thomson Reuters Trust Principles.