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Cooling inflation to ease pressure for tightening
By Wang Yanlin |
September 10, 2011, Saturday
|
Print Edition
Print Edition
China's inflation cooled to 6.2 percent in August, helped by slower increases for food, possibly giving the government scope to hold off on further tightening measures.
Analysts predict the moderation will continue, but it won't be a sharp slowdown, and policy-makers were unlikely to abruptly change their policy stance.
The consumer price index, the main gauge of inflation, rose 6.2 percent from a year earlier last month, weakening from a 37-month high of 6.5 percent in July, the National Bureau of Statistics said yesterday.
Inflation is still above the government's 4 percent target for the year but the latest figures suggest interest rate rises and other curbs meant to cool the economy are taking hold. That could allow greater leeway for policies aimed at keeping economic growth on track as the outlook in the United States and Europe worsens.
Food prices, a large part of the index, rose 13.4 percent year on year, down from July's 14.8 percent and June's 14.4 percent.
A 29.3 percent surge in prices for meat and poultry and a 12.2 percent rise for staple grains kept food price increases relatively strong.
Less pressure from inflation "would remove a significant barrier to further policy stimulus in the event of a slump in global demand," said Mark Williams, of Capital Economics, in a report, according to The Associated Press.
"China's inflation is down, but not out," AP quoted Alistair Thornton, an economist for IHS Global Insight, as saying.
"The moderation in inflation is not broad based," he said, attributing it mainly to slower increases in pork prices, which still jumped 45.5 percent from a year earlier.
An imbalance remains between pork supply and demand, said Wang Jun, an analyst with the China Center for International Economic Exchanges. To ease prices, the government has increased investment to boost live pig supplies and has released more pork reserves onto the market.
The non-food sector edged up 3 percent in August. Among the highest increases was a 14.9 percent climb in diesel and gas cost.
In the first eight months, consumer prices jumped 5.6 percent.
"The August data seems to confirm our view that inflation peaked in July, and we expect no more interest rate increases in 2011," said Chang Jian, a Barclays Capital economist.
"The August price data is unlikely to persuade China to change its current policy stance. In an ideal scenario, China should ease its monetary policy now, but I don't think the government would do so," said Tang Yunfei, economist at Founder Securities in Beijing. "However, if the European debt crisis worsens, the Chinese government may become less hesitant to loosen monetary policy."
China has raised interest rates three times this year, and the reserve requirement ratio six times.
Policy-makers have become increasingly reluctant to launch more tightening measures after second-quarter economic data showed growth in China moderated to 9.5 percent, compared to 9.7 percent in the first three months and 10.4 percent last year.
Sun Chi, an economist at Nomura, said inflationary pressure will continue as the consumer prices' growth will hang on at a relatively high level in the coming months. Nomura upgraded the projection of this year's inflation in China to 5.6 percent from an earlier 5.2 percent.
"Policy-makers may adopt a wait-and-see attitude in the rest of this year, and make policies more flexible and adaptable," Sun said.
Other figures released yesterday, including those for industrial production, investment and retail sales, all pointed to an easing economy.
Analysts predict the moderation will continue, but it won't be a sharp slowdown, and policy-makers were unlikely to abruptly change their policy stance.
The consumer price index, the main gauge of inflation, rose 6.2 percent from a year earlier last month, weakening from a 37-month high of 6.5 percent in July, the National Bureau of Statistics said yesterday.
Inflation is still above the government's 4 percent target for the year but the latest figures suggest interest rate rises and other curbs meant to cool the economy are taking hold. That could allow greater leeway for policies aimed at keeping economic growth on track as the outlook in the United States and Europe worsens.
Food prices, a large part of the index, rose 13.4 percent year on year, down from July's 14.8 percent and June's 14.4 percent.
A 29.3 percent surge in prices for meat and poultry and a 12.2 percent rise for staple grains kept food price increases relatively strong.
Less pressure from inflation "would remove a significant barrier to further policy stimulus in the event of a slump in global demand," said Mark Williams, of Capital Economics, in a report, according to The Associated Press.
"China's inflation is down, but not out," AP quoted Alistair Thornton, an economist for IHS Global Insight, as saying.
"The moderation in inflation is not broad based," he said, attributing it mainly to slower increases in pork prices, which still jumped 45.5 percent from a year earlier.
An imbalance remains between pork supply and demand, said Wang Jun, an analyst with the China Center for International Economic Exchanges. To ease prices, the government has increased investment to boost live pig supplies and has released more pork reserves onto the market.
The non-food sector edged up 3 percent in August. Among the highest increases was a 14.9 percent climb in diesel and gas cost.
In the first eight months, consumer prices jumped 5.6 percent.
"The August data seems to confirm our view that inflation peaked in July, and we expect no more interest rate increases in 2011," said Chang Jian, a Barclays Capital economist.
"The August price data is unlikely to persuade China to change its current policy stance. In an ideal scenario, China should ease its monetary policy now, but I don't think the government would do so," said Tang Yunfei, economist at Founder Securities in Beijing. "However, if the European debt crisis worsens, the Chinese government may become less hesitant to loosen monetary policy."
China has raised interest rates three times this year, and the reserve requirement ratio six times.
Policy-makers have become increasingly reluctant to launch more tightening measures after second-quarter economic data showed growth in China moderated to 9.5 percent, compared to 9.7 percent in the first three months and 10.4 percent last year.
Sun Chi, an economist at Nomura, said inflationary pressure will continue as the consumer prices' growth will hang on at a relatively high level in the coming months. Nomura upgraded the projection of this year's inflation in China to 5.6 percent from an earlier 5.2 percent.
"Policy-makers may adopt a wait-and-see attitude in the rest of this year, and make policies more flexible and adaptable," Sun said.
Other figures released yesterday, including those for industrial production, investment and retail sales, all pointed to an easing economy.
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