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Inflation rises at slowest pace in 29 months
By Wang Yanlin |
July 9, 2012, Monday
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Online Edition
Online Edition
INFLATION expanded at the slowest pace in 29 months in June, much weaker than expected and allows more room for policy easing to encourage growth in an economy where a deepening downturn is feared.
The Consumer Price Index, the main gauge of inflation, rose 2.2 percent from a year earlier last month, the National Bureau of Statistics said this morning. It compared with a 3 percent increase in May and was less than market estimates of around 2.4 percent.
Food costs, which make up nearly one third in the basket, gained 3.8 percent in June, down from 6.4 percent year-on-year growth in May and contributing the most to the CPI slowdown.
"The data confirms that inflation is no longer the top priority," said Li Maoyu, an analyst at Changjiang Securities Co. "The sharper-than-expected slowdown in inflation suggests insufficient domestic demand, and may invite policy-makers to launch more supporting measures."
The People's Bank of China cut interest rates surprisingly last week. It was the second time in a month that lending rates were cut to bolster growth.
While the one-year deposit rate was cut 0.25 percentage points, the one-year lending rate fell by 0.31 percentage points to 6 percent - an asymmetrical move apparently aimed at encouraging businesses to borrow money.
Many analysts fear the downturn will deepen. The interest rate cuts came after data showed manufacturing activity in June expanded at the slowest pace in seven months.
China's gross domestic product figure for the second quarter is scheduled to be released on Friday. Some economists said growth will likely moderate further to around 7.6 percent after an 8.1 percent rise in the first quarter, the slowest in nearly three years.
Easing inflation provided room for more stimulus policies, Li said. In the first six months, inflation advanced 3.3 percent, compared with last year's 5.4 percent.
The Producer Price Index, the factory-gate yardstick of inflation and a harbinger of future consumer prices, dropped 2.1 percent from a year earlier in June. It was the fourth straight monthly loss and compared to May's 1.4 percent fall.
Liu Ligang, an economist at Australia and New Zealand Banking Group, warned if inflation were to continue to drop at such a pace, the risk of deflation could appear.
"This means the existing output gap is larger than expected," Liu said in a note. "The rising output gap will allow more aggressive policy easing. Such expectations will push market rates down further, favoring high-yield assets."
The Consumer Price Index, the main gauge of inflation, rose 2.2 percent from a year earlier last month, the National Bureau of Statistics said this morning. It compared with a 3 percent increase in May and was less than market estimates of around 2.4 percent.
Food costs, which make up nearly one third in the basket, gained 3.8 percent in June, down from 6.4 percent year-on-year growth in May and contributing the most to the CPI slowdown.
"The data confirms that inflation is no longer the top priority," said Li Maoyu, an analyst at Changjiang Securities Co. "The sharper-than-expected slowdown in inflation suggests insufficient domestic demand, and may invite policy-makers to launch more supporting measures."
The People's Bank of China cut interest rates surprisingly last week. It was the second time in a month that lending rates were cut to bolster growth.
While the one-year deposit rate was cut 0.25 percentage points, the one-year lending rate fell by 0.31 percentage points to 6 percent - an asymmetrical move apparently aimed at encouraging businesses to borrow money.
Many analysts fear the downturn will deepen. The interest rate cuts came after data showed manufacturing activity in June expanded at the slowest pace in seven months.
China's gross domestic product figure for the second quarter is scheduled to be released on Friday. Some economists said growth will likely moderate further to around 7.6 percent after an 8.1 percent rise in the first quarter, the slowest in nearly three years.
Easing inflation provided room for more stimulus policies, Li said. In the first six months, inflation advanced 3.3 percent, compared with last year's 5.4 percent.
The Producer Price Index, the factory-gate yardstick of inflation and a harbinger of future consumer prices, dropped 2.1 percent from a year earlier in June. It was the fourth straight monthly loss and compared to May's 1.4 percent fall.
Liu Ligang, an economist at Australia and New Zealand Banking Group, warned if inflation were to continue to drop at such a pace, the risk of deflation could appear.
"This means the existing output gap is larger than expected," Liu said in a note. "The rising output gap will allow more aggressive policy easing. Such expectations will push market rates down further, favoring high-yield assets."
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