Inflation slows but food still sizzling

PUBLISHED : Saturday, 10 September, 2011, 12:00am
UPDATED : Saturday, 10 September, 2011, 12:00am


Mainland consumer inflation moderated from a three-year-high last month and economic activities softened, indicating further tightening measures are unlikely this year.

The consumer price index in August was at 6.2 per cent from a year ago, compared with a 37-month-high of 6.5 per cent in July, the National Bureau of Statistics said yesterday.

The moderation in the CPI was anticipated by many economists and was helped by a higher comparison base in the same period last year and slower increases in pork prices. Nevertheless, pork prices were still up 45.5 per cent, while cooking oil rose 17 per cent and the cost of eggs gained 16.3 per cent. Overall, the food category was up 13.4 per cent.

'The momentum for strong inflation growth will likely continue for some time, but we believe there is no need for further tightening,' said Shen Jianguang, an economist at Mizuho Securities Asia.

'However, a change of policy bias towards loosening will have to wait until turning points in inflation, housing prices and export growth are confirmed.'

Chinese policymakers have attempted to strike a balance between inflation and growth but have been faced with a dilemma.

Inflation resulting from a lending binge in the past two years has come amid the risk of an economic slowdown stemming from slackening world demand.

The CPI rose 0.3 per cent last month from July, mainly driven by food and housing costs.

The producer price index gained 7.3 per cent year on year, slower than the 7.5 per cent increase in July, reflecting downward price adjustment in global commodity prices. However, it edged up 0.1 per cent month on month after staying flat for two months.

Wang Tao, an economist at UBS Securities predicts CPI will slow to about 4 per cent at the end of this year assuming there was 'no serious global recession, no major natural disasters and no quick easing of macro policy stance on the mainland'.

Mainland officials have reaffirmed inflation is a priority although gloomy global economic recovery prospects threaten to dent exports from the world's second-largest economy.

Economic activities are already gearing down after the government raised interest rates five times since October last year and introduced curbs to cool the property market.

In August, industrial output growth slowed from 14 per cent in July to 13.5 per cent, the statistics bureau said. Growth in power production, steel products and cement output all slowed last month from July.

Fixed-asset investment grew 25 per cent year on year in the first eight months, compared with a 25.4 per cent gain for the first seven months. Retail sales growth also cooled by 0.2 percentage point from July to 17 per cent last month.

'Production and demand data suggest China is on track for a soft landing,' said Lu Ting, an economist at Bank of America Merrill Lynch. 'The market may gain more confidence in the resilience of the Chinese economy, and needs to put less hope on an imminent monetary policy easing.'