Mainland inflation at 3-year high
Mainland inflation hit a 37-month high of 6.5 per cent last month, but experts suggest it may be a peak, saying the government's tightening policies are taking hold and market turmoil is pointing to slower global growth and lower commodity prices.
The consumer price index (CPI) last month increased 6.5 per cent from a year earlier and 0.5 per cent from June, the National Bureau of Statistics said yesterday.
The rise, which edged up from a three-year-high of 6.4 per cent in June, was driven mainly by a 14.8 per cent gain in food prices, which count for roughly one-third of the index.
The producer price index (PPI) rose 7.5 per cent year on year last month, compared with the 7.1 per cent in June, but the month-on-month PPI was flat.
The CPI was slightly higher than expected, but economists forecast inflationary pressure could ease to 4 to 4.5 per cent by the end of this year. Some suggest there may be subtle changes in tightening policies.
HSBC economist Qu Hongbin expects prices to cool and the CPI to ease in the coming months, citing a continued slowing of money-supply growth, a more favourable 'base effect' from last year's CPI figures, softening commodity prices on the back of slower US and global growth, lower domestic demand and government measures designed to encourage food production.
The mainland has raised interest rates five times and the bank reserve requirement ratio (RRR) nine times since October. The efforts sought to tame inflation spawned by the loose monetary policy of the previous two years, which, in turn, was a response to the financial crisis of 2008.
Recent developments - weak US economic growth, a European sovereign debt crisis and market turmoil stemming partly from Standard & Poor's downgrade of the US credit rating - were likely to make Beijing reassess the global outlook and its impact on China, Barclays Capital economist Zhuang Jian said. He said the probability of another interest rate increase in the third quarter was decreasing because of 'escalating external risks', though it could not be ruled out if global markets stabilised.
Jing Ulrich, chairwoman of JPMorgan's global markets, China, expects Beijing to adopt a more flexible stance and 'selectively loosen credit' in the next few months if the external environment remains challenging. Looser credit would help small- and medium-sized enterprises, which hired the bulk of the workforce and had found it hard to obtain loans, Ulrich said.
But Lu Ting, China economist at Bank of America-Merrill Lynch, said it was too early to call for monetary easing because Beijing learned 'big lessons' from its extremely loose monetary policies in 2009 and 2010.
'Beijing will instead use proactive fiscal policies on the back of surging fiscal revenue growth to bolster fixed-asset investment on some mega public projects such as social housing and water systems,' Lu said.
Percentage rise in pork prices last month, the Ministry of Commerce says. Up to early July, prices had risen 38 per cent since the start of the year