Saturday, September 8, 2012

China's inflation rate accelerates in August

BEIJING: China's inflation rate accelerated slightly in August amid higher costs for food, official data showed Sunday, potentially limiting the government's ability to enact fresh stimulus measures.

Consumer prices rose 2.0 percent year-on-year, the National Bureau of Statistics said, as food prices increased 3.4 percent. Inflation stood at 1.8 percent in July.

Analysts say the figures could make moves such as further cuts to interest rates less likely because of the inflationary risks they pose.

Producer prices -- which measure costs of goods as they leave factories -- declined 3.5 percent year-on-year, falling for the sixth straight month, NBS data showed. Producer prices fell 2.9 percent in July.

China's economy expanded 7.6 percent in the second quarter through the end of June for its weakest performance in three years and marking the sixth straight quarter of slower growth.

The government is targeting expansion in gross domestic product of 7.5 percent for 2012. That would mark a significant slowdown for the world's second-largest economy, which grew 9.3 percent in 2011 and 10.4 percent in 2010.

Data in the current third quarter have remained weak as the slack global economy dents demand for exports and domestic activity weakens.

Chinese authorities have taken steps this year to boost growth by cutting interest rates twice in quick succession and slashing the amount of funds banks must keep in reserve to boost lending, but with little impact so far.

Given continued weak figures, analysts have been expecting authorities to take further monetary loosening steps to fire up growth, though the slight rise in consumer price inflation in August could call that scenario into question.

"The likelihood of a cut is now clearly smaller than last month," IHS Global Insight economists Ren Xianfang and Alistair Thornton said in a report on the August inflation data, emphasising that higher consumer prices make it harder to "absorb the inflationary pressure" of monetary stimulus.

Rather, they expect the government to use other tools, such as fiscal stimulus, to help gird the economy.

Indeed, state media reported Friday that that China has approved a massive infrastructure package worth more than 1.0 trillion yuan ($158 billion).

The top economic planner, the National Development and Reform Commission, last week announced approval of 55 infrastructure projects ranging from subway lines to highways, reports said.

The official Xinhua news agency described the package of projects as a "stimulus plan" though the government did not use that language when announcing the approvals.

China carried out a massive 4.0 trillion yuan fiscal stimulus package in the wake of the global financial crisis in 2008.

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