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Monday, Oct 15, 2012 5:30 AM UTC

China’s inflation eases, giving room for stimulus

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Topics: From the Wires,

BEIJING (AP) — China’s inflation eased further in September, giving the government more room to stimulate the country’s slowing economy.

Consumer inflation fell to 1.9 percent from August’s 2 percent rate, data showed Monday. Politically sensitive food prices rose 2.5 percent, down from the previous month’s 3.4 percent.

The decline gives Beijing more room to cut interest rates or boost spending to reverse the country’s deepest slowdown since the 2008 global crisis.

“There’s no argument about it, the economy is yet to stabilize,” said IHS Global Insight economist Alistair Thornton in a report.

“Fears surrounding the inflationary impact of monetary loosening on consumer prices are misplaced — the onus remains on growth stabilization.”

Producer prices contracted 3.6 percent compared with a year earlier, a striking sign of slack demand despite two interest rate cuts since the start of June and higher government spending on building airports and other public works.

Chinese leaders have been moving cautiously in response to the slowdown after their huge stimulus in 2008 ignited inflation and a wasteful building boom. Economic growth fell to a three-year low of 7.6 percent in the quarter ending in June and officials including President Hu Jintao have warned it may decline further before recovering.

Analysts expect growth to decline further to about 7.3 percent when the latest quarter’s figures are reported this week. Last week, the World Bank cut its annual growth forecast for China to 7.7 percent from its May outlook of 8.2 percent.

Forecasters expect a recovery to start late this year or in early 2013 but say it likely will be too weak to drive global demand without improvement in the United States and Europe.

Trade data released Saturday showed Chinese imports revived slightly from the previous month’s contraction but grew by only 2.4 percent, suggesting a recovery has yet to take hold.

The slowdown is due partly to government curbs imposed to cool an overheated economy. Chinese leaders are trying to make their economy more efficient and resilient by reducing reliance on imports and investment and promoting domestic consumption and technology-based industries, but domestic consumption is growing slowly.

“There is little convincing evidence that spending growth is doing anything better than standing still,” said Mark Williams and Qinwei Wang of Capital Economics in a report.

The government has pumped money into the economy by approving a multibillion-dollar wave of investments by state companies and spending on subways, airports and other public facilities.

Analysts expect no major new initiatives until a once-a-decade handover of power to younger Communist Party leaders begins at a meeting in November.

“We do not expect the government to come up with any major new stimulus, either during the leadership transition or after, unless the economy takes a turn for the much worse,” said UBS economist Tao Wang in a report.

___

National Bureau of Statistics of China (in Chinese): www.stats.gov.cn

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