Inflation gathers pace as economy starts to slow
By Wang Yanlin |
August 12, 2010, Thursday
|
Print Edition
Print Edition
China's inflation grew at its fastest pace in 21 months while industrial production and other key economic indices continued to slow, paving the way for policy fine-tuning to support growth.
Some analysts said rebounding consumer prices may have peaked, and overall economic growth was largely in line with that anticipated by Chinese authorities.
The Consumer Price Index, the main gauge of inflation, accelerated 3.3 percent from a year earlier last month, the National Bureau of Statistics said yesterday.
That compared with an increase of 2.9 percent in June and 3.1 percent in May. In the first seven months, the inflation index gained 2.7 percent year on year, still below the yearly target of 3 percent set by the central bank.
Extreme weather
"The dramatic rebound of the CPI was a natural result of extreme weather, serious drought and floods taking place in recent months which boosted food prices," said Li Maoyu, an analyst at Changjiang Securities Co.
"The 3.3 percent expansion may be the highest of the year, and we don't think there will be any interest rate increase in the current quarter."
Food costs, which account for a third of the CPI basket, rose 6.8 percent from a year earlier in July, while prices in the non-food sector advanced just 1.6 percent.
The Producer Price Index, the factory-gate measure of inflation, rose 4.8 percent on an annual basis last month. The rate was 1.6 percentage points less than that in June, another sign that the slowdown in production costs will spill over to the CPI in later months.
China's moderating economy has triggered concerns of excessive policy measures to curb overheating.
The National Association of Financial Market Institutional Investors said in a report last Friday that China may fine-tune its policy stance back to a supportive one in the third quarter and even reduce the reserve requirement ratio, the share of deposits a bank must set aside as reserves, to free more capital.
Property market
China's gross domestic product increased 10.3 percent from a year earlier in the second quarter, down from the surge of 11.9 percent in the first three months after the government determined to cool the property market, reduce energy consumption, revamp economic structure and control local government financing.
The State Information Center, a unit under the National Development and Reform Commission, China's top economic planner, forecast the growth may further slow to 9.2 percent in the third quarter.
Wang Qing, a Morgan Stanley economist, said China's economy had managed a soft landing, but the speed of slowdown was faster than he had estimated. His agency has modified the growth forecast for this year to 10 percent from 11 percent.
"There may be a visible softening in policy tone in the third quarter," Wang said. He also predicted there would be no interest rate rise this year.
Some analysts said rebounding consumer prices may have peaked, and overall economic growth was largely in line with that anticipated by Chinese authorities.
The Consumer Price Index, the main gauge of inflation, accelerated 3.3 percent from a year earlier last month, the National Bureau of Statistics said yesterday.
That compared with an increase of 2.9 percent in June and 3.1 percent in May. In the first seven months, the inflation index gained 2.7 percent year on year, still below the yearly target of 3 percent set by the central bank.
Extreme weather
"The dramatic rebound of the CPI was a natural result of extreme weather, serious drought and floods taking place in recent months which boosted food prices," said Li Maoyu, an analyst at Changjiang Securities Co.
"The 3.3 percent expansion may be the highest of the year, and we don't think there will be any interest rate increase in the current quarter."
Food costs, which account for a third of the CPI basket, rose 6.8 percent from a year earlier in July, while prices in the non-food sector advanced just 1.6 percent.
The Producer Price Index, the factory-gate measure of inflation, rose 4.8 percent on an annual basis last month. The rate was 1.6 percentage points less than that in June, another sign that the slowdown in production costs will spill over to the CPI in later months.
China's moderating economy has triggered concerns of excessive policy measures to curb overheating.
The National Association of Financial Market Institutional Investors said in a report last Friday that China may fine-tune its policy stance back to a supportive one in the third quarter and even reduce the reserve requirement ratio, the share of deposits a bank must set aside as reserves, to free more capital.
Property market
China's gross domestic product increased 10.3 percent from a year earlier in the second quarter, down from the surge of 11.9 percent in the first three months after the government determined to cool the property market, reduce energy consumption, revamp economic structure and control local government financing.
The State Information Center, a unit under the National Development and Reform Commission, China's top economic planner, forecast the growth may further slow to 9.2 percent in the third quarter.
Wang Qing, a Morgan Stanley economist, said China's economy had managed a soft landing, but the speed of slowdown was faster than he had estimated. His agency has modified the growth forecast for this year to 10 percent from 11 percent.
"There may be a visible softening in policy tone in the third quarter," Wang said. He also predicted there would be no interest rate rise this year.
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