Inflation falls to a 20-month low
By Wang Yanlin |
March 10, 2012, Saturday
|
Print Edition
Print Edition
China's inflation eased to a 20-month low last month, creating more room for the world's second-largest economy to roll out more growth-supportive policies when all other key economic indicators exhibited a slowdown.
The Consumer Price Index, the main gauge of inflation, rose 3.2 percent from a year earlier in February, compared to January's 4.5 percent, the National Bureau of Statistics said yesterday. The pace was the slowest since June 2010, and ended negative de facto interest rates in the past two years.
Lower food prices contributed the most to the growth moderation.
Food costs, which account for almost a third of the CPI basket, rose 6.2 percent year on year in February, compared to January's 10.5 percent.
Although data in the last two months may have been distorted by the timing of the Spring Festival holiday, which was in January this year but February the year before, analysts believe inflation is back on the downward track that was unexpectedly disrupted in January.
"China's February price data makes it clear that inflation pressures are easing," said Alaistair Chan, an economist at Moody's Analytics. "A number of factors, including diminishing producer prices, suggest that overall inflation will continue declining in year-on-year terms until the mid-year."
The Producer Price Index, the factory gate measure of inflation, edged up 0.7 percent on an annual basis in February, the same as in January.
Jing Ulrich, chairman of global markets, China, at JP Morgan, said lower inflationary pressure suggested the government would have wider scope to implement selective easing measures to counter the downside risks to growth.
"We expect inflation to continue moderating to about 2.8 percent by the third quarter of this year, and further reserve requirement ratio cuts will be needed to maintain stable economic growth," Ulrich said.
China's economy is slowing, according to the statistics.
In the first two months of this year, industrial production growth lost 1.4 percentage points from December to 11.4 percent; fixed-asset investment rose 21.5 percent year on year, 2.3 percentage points slower than in 2011; and retail sales rose 14.7 percent, compared with 18.1 percent in December.
To sustain economic growth and avoid a hard landing, China has cut the reserve requirement ratio twice in the past three months, hoping to bolster business vitality by allowing banks to set aside less in reserves and thus enrich market liquidity.
However, Liu Ligang, an economist at Australia and New Zealand Banking Group Ltd, said China should be careful with any policy adjustments.
"As the average inflation rate for January-February was still close to 4 percent, the inflation outlook is uncertain," Liu said.
"The combined effect of rebounding world commodity prices and surging oil prices, as well as the Chinese authorities' push to reform fuel and utility pricing mechanisms this year, will also add to inflationary pressures."
He said that an uncertain inflation outlook would make the central bank more cautious about policy easing, and another reserve requirement ratio cut was unlikely to happen until this year's second quarter.
At the annual session of the National People's Congress, Premier Wen Jiabao said the government targeted controlling inflation under 4 percent this year, unchanged from 2011. That suggested curbing price rises remains a priority for the government.
China has also lowered its economic growth target to 7.5 percent this year from the 8 percent that had been in place since 2005.
The Consumer Price Index, the main gauge of inflation, rose 3.2 percent from a year earlier in February, compared to January's 4.5 percent, the National Bureau of Statistics said yesterday. The pace was the slowest since June 2010, and ended negative de facto interest rates in the past two years.
Lower food prices contributed the most to the growth moderation.
Food costs, which account for almost a third of the CPI basket, rose 6.2 percent year on year in February, compared to January's 10.5 percent.
Although data in the last two months may have been distorted by the timing of the Spring Festival holiday, which was in January this year but February the year before, analysts believe inflation is back on the downward track that was unexpectedly disrupted in January.
"China's February price data makes it clear that inflation pressures are easing," said Alaistair Chan, an economist at Moody's Analytics. "A number of factors, including diminishing producer prices, suggest that overall inflation will continue declining in year-on-year terms until the mid-year."
The Producer Price Index, the factory gate measure of inflation, edged up 0.7 percent on an annual basis in February, the same as in January.
Jing Ulrich, chairman of global markets, China, at JP Morgan, said lower inflationary pressure suggested the government would have wider scope to implement selective easing measures to counter the downside risks to growth.
"We expect inflation to continue moderating to about 2.8 percent by the third quarter of this year, and further reserve requirement ratio cuts will be needed to maintain stable economic growth," Ulrich said.
China's economy is slowing, according to the statistics.
In the first two months of this year, industrial production growth lost 1.4 percentage points from December to 11.4 percent; fixed-asset investment rose 21.5 percent year on year, 2.3 percentage points slower than in 2011; and retail sales rose 14.7 percent, compared with 18.1 percent in December.
To sustain economic growth and avoid a hard landing, China has cut the reserve requirement ratio twice in the past three months, hoping to bolster business vitality by allowing banks to set aside less in reserves and thus enrich market liquidity.
However, Liu Ligang, an economist at Australia and New Zealand Banking Group Ltd, said China should be careful with any policy adjustments.
"As the average inflation rate for January-February was still close to 4 percent, the inflation outlook is uncertain," Liu said.
"The combined effect of rebounding world commodity prices and surging oil prices, as well as the Chinese authorities' push to reform fuel and utility pricing mechanisms this year, will also add to inflationary pressures."
He said that an uncertain inflation outlook would make the central bank more cautious about policy easing, and another reserve requirement ratio cut was unlikely to happen until this year's second quarter.
At the annual session of the National People's Congress, Premier Wen Jiabao said the government targeted controlling inflation under 4 percent this year, unchanged from 2011. That suggested curbing price rises remains a priority for the government.
China has also lowered its economic growth target to 7.5 percent this year from the 8 percent that had been in place since 2005.
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