July 11, 2012

 

China's inflation slides to 29-month low

 

 

Falling food prices has made China's Consumer Price Index (CPI) drop to a 29-month low, further challenging the government to create more pro-growth measures for economic improvement.

 

The CPI grew 2.2% on-year in June, the slowest pace since January 2010, the National Bureau of Statistics (NBS) announced on Monday (July 9).

 

It eased from May's 3% and April's 3.4%.

 

Compared with the previous month, it edged down 0.6%, according to the NBS.

 

In the first six months of 2012, the CPI climbed 3.3% compared with the same period of last year.

 

Food prices, which account for nearly one-third of the weighting in the calculation of China's CPI, increased 3.8% last month from one year earlier, down from 6.4% in May.

 

According to the NBS, pork prices fell 12.2% on-year in June, eggs declined 3.6%, while vegetable prices increased 12.1% due to on-going rain across the country.

 

In addition to food prices, easing wholesale prices at the factory gate due to over-capacity in a few industries and waning imported inflation also explained the slowing CPI, said Yao Jingyuan, a researcher from the Councillor's Office of the State Council, or China's cabinet.

 

The Producer Price Index (PPI), a main gauge of inflation at the wholesale level, fell 2.1% in June from a year earlier. It was the lowest reading since December 2009.

 

Yao predicted such trends will continue in the second half of this year, keeping China's CPI away from effects of the imported inflation.

 

With a bumper grain harvest and steady supply of vegetables and eggs, bringing the yearly inflation within China's 4% target is possible, he added.

 

While the slowing CPI bodes well for consumers, it ignited fears of deflation, as many believe macro-economic data for June that is due for release on Friday will point to a further slow-down of the world's second-largest economy.

 

China's economy slowed to a near-three-year low of 8.1% in the first quarter, dampened by a self-directed cool-down in investment projects and lacklustre exports. It is widely expected to slow for a sixth straight quarter in April-June.

 

Over the weekend, Premier Wen Jiabao said during an inspection tour of east China's Jiangsu province that China's economy is running at a generally stable pace, but there is still huge downward pressure. He called for more aggressive efforts to preset and fine-tune economic policies.

 

Li Changan, a professor with the University of International Business and Economics, presented a more optimistic view, however, arguing that it is too early to say the economy has fallen into deflation, considering the CPI still remained at a positive level.

 

But with a faster-than-expected slowdown of the economy, policy fine-tuning is badly needed, the professor warned.