Inflation slows to 2.2% in June
By Wang Yanlin |
July 10, 2012, Tuesday
|
Print Edition
Print Edition
China's inflation grew at its slowest pace in 29 months in June, weaker than expected and allowing more room for policy easing to encourage growth in the world's second-largest economy to stave off a deepening downturn.
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 yesterday.
That compared with May's 3 percent increase and a market estimation of around 2.4 percent.
Food costs contributed most to the CPI slowdown. They gained 3.8 percent in June, down from May's 6.4 percent year-on-year growth.
"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."
At the weekend, Premier Wen Jiabao said China's economic growth was facing further downward pressure, emphasizing investment as the key to boosting demand and stabilizing growth.
Wen's remarks followed surprise interest rate cuts last week, the second in a month. The one-year lending rate fell by 0.31 percentage points to 6 percent - an approach aimed at stimulating loans to businesses.
Zhang Zhiwei, an economist at Nomura, said recent signs all indicated that the government was feeling a greater urgency to relax its policies, and that public investment would likely pick up in the coming months.
China's gross domestic product figures for the second quarter are due to be released on Friday. Some economists say growth will moderate further to around 7.6 percent after 8.1 percent in the first quarter, the slowest in nearly three years.
The easing inflation provides room for more stimulus policies, said Chang Jian, an economist at Barclays Capital. "With the risk of inflation dissipated, the authorities will become more assured to use both fiscal and monetary policy to stimulate growth."
In the first six months, China's inflation rose 3.3 percent, compared with 2011'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.
However, Liu Ligang, an economist at Australia and New Zealand Banking Group, warned that if inflation was 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. "Rising output gap will then allow more aggressive policy easing. Such expectations will push market rates to decline 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 yesterday.
That compared with May's 3 percent increase and a market estimation of around 2.4 percent.
Food costs contributed most to the CPI slowdown. They gained 3.8 percent in June, down from May's 6.4 percent year-on-year growth.
"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."
At the weekend, Premier Wen Jiabao said China's economic growth was facing further downward pressure, emphasizing investment as the key to boosting demand and stabilizing growth.
Wen's remarks followed surprise interest rate cuts last week, the second in a month. The one-year lending rate fell by 0.31 percentage points to 6 percent - an approach aimed at stimulating loans to businesses.
Zhang Zhiwei, an economist at Nomura, said recent signs all indicated that the government was feeling a greater urgency to relax its policies, and that public investment would likely pick up in the coming months.
China's gross domestic product figures for the second quarter are due to be released on Friday. Some economists say growth will moderate further to around 7.6 percent after 8.1 percent in the first quarter, the slowest in nearly three years.
The easing inflation provides room for more stimulus policies, said Chang Jian, an economist at Barclays Capital. "With the risk of inflation dissipated, the authorities will become more assured to use both fiscal and monetary policy to stimulate growth."
In the first six months, China's inflation rose 3.3 percent, compared with 2011'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.
However, Liu Ligang, an economist at Australia and New Zealand Banking Group, warned that if inflation was 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. "Rising output gap will then allow more aggressive policy easing. Such expectations will push market rates to decline further, favoring high-yield assets."
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