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China’s Inflation Slows


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China’s inflation slowed in June to its lowest rate since January 2010, official data showed Monday, giving the government more room to move in its efforts to reboot the world’s second-biggest economy.

The country’s consumer price index (CPI) rose by 2.2 per cent year-on-year in June, the National Bureau of Statistics said, down from 3.0 per cent in May and the lowest figure since the start of 2010.

The inflation rate for the first half of 2012 was 3.3 per cent, the bureau said, well below the government’s target of 4.0 per cent.

The inflation figures were the latest in a series of data in recent weeks showing China’s economy is slowing, and analysts said they would allow the government to act more aggressively in trying to revive growth.

“The softening CPI will give the central bank more room to stabilise the economy,” Tang Jianwei, a Shanghai-based economist with the Bank of Communications, told AFP.

“Before the central bank had to balance between inflationary pressures and softening demand.”

China’s economy grew an annual 8.1 per cent in the first quarter of 2012 – its slowest pace in nearly three years. The government will release data for the second quarter on Friday.

The government early this year set an annual economic growth target of 7.5 per cent, down from expansion of 9.2 per cent last year and 10.4 per cent in 2010.

But the central bank last week cut interest rates for the second time in a month, in a surprise move that analysts said indicated the economy was likely slowing more sharply than expected.

Chinese Premier Wen Jiabao then called on Sunday for stronger economic growth measures.

“Currently, China’s economy is generally stable, but downward pressure is still relatively big,” the official Xinhua news agency quoted Wen as saying.

“We must take further steps to increase the strength of pre-emptive fine-tuning,” he said, referring to economic policy.

Analysts said inflation would likely fall further in the coming months, with deflation even a possibility.

They pointed to China’s producer price index, an advance indicator of future inflation, which fell 2.1 per cent in June from the same month a year earlier, according to the statistics bureau’s report on Monday.

“While an economy-wide generalised deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors,” said Ren Xianfang, chief China economist for IHS Global Insight in Beijing.

“Persistent deflation can be poisonous to the economy, which has already been manifested by continuous weakening of business profits.”

The deflation threat is a marked turnaround, with China’s leaders working hard since the start of 2010 to keep inflation in check.

Inflation peaked at 6.5 per cent year-on-year in July last year, from a low of 1.5 per cent in January, 2010.

Bank of Communications’ Tang said the central bank may cut interest rates again this year.

However he said more likely moves in the short term were up to three more cuts in the required reserve ratio, or the amount of money banks must hold in reserve, to inject more cash into the economy.

“There is still room for an interest cut by year end, but… the central bank will likely rely more on quantitative measures such as cuts in the required reserve ratio,” Tang said.

Food prices, which have been a key component of rising prices in China, were up 3.8 per cent in June, while non-food prices rose 1.4 per cent, according to the statistics bureau.

(Source: AFP)

 

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