July 09, 2012
China's consumer-price inflation eased to a 29-month low in June, giving Premier Wen Jiabao more room to relax economic policies after the second interest-rate cut in a month.
The consumer price index rose 2.2 per cent from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 per cent median estimate in a Bloomberg News survey of 32 analysts. Producer prices dropped 2.1 per cent, versus the median forecast for a 2 per cent fall.
Today's inflation report marks a fifth month of price gains below Wen's 4 per cent target and may encourage the government to take further steps to aid growth that probably decelerated for a sixth quarter. Expansion in the three months through June probably slowed to the weakest in three years, putting Wen at risk of missing his 7.5 per cent target for the year.
“The downward trend gives Beijing sufficient room for stepping up easing,” Qu Hongbin, co-head of Asian Economic Research for HSBC Holdings Plc in Hong Kong, said before the release.
The interest-rate cuts, including one announced July 5, were the first since 2008 and followed three reductions in banks' reserve requirements starting in November.
The Shanghai Composite Index slipped 0.1 per cent last week, capping the third week of losses, on concern slowing global growth will hurt corporate earnings. The index fell 0.6 per cent today at 9:37 a.m. local time.
Slower expansion
The economy may have expanded 7.7 per cent in the second quarter, down from 8.1 per cent in the prior three months, analysts estimated ahead of government data due July 13.
Today's reports showed the CPI in June fell 0.6 per cent from May, the biggest drop in two years, while producer prices declined 0.7 per cent from the previous month.
Food prices, which account for about a third of the consumer-price basket, rose 3.8 per cent from a year earlier and fell 1.6 per cent from May.
The inflation slowdown reflects in part a decline in commodity prices. The S&P GSCI Spot Index of 24 raw materials has dropped about 11 per cent in the past year.
The last time consumer-price increases slowed to this level in 2008, the People's Bank of China was in the midst of five lending-rate cuts totaling 216 basis points.
Last week's action by the central bank reduced the one-year lending rate by 31 basis points to 6 per cent and one-year deposit rate by 25 basis points to 3 per cent. The nation moved in tandem with the European Central Bank and the Bank of England, which also boosted monetary stimulus to support growth.
Wider discount
The PBOC also allowed banks to offer loans at as much as 30 per cent less than the benchmark rate, the second widening of the range in a month.
China Petroleum & Chemical Corp. and PetroChina Co., the nation's biggest refiners, face more losses from processing crude after the government cut fuel prices last month by the most since 2008 as global oil costs tumbled.
Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, said China has “plenty of room” for additional easing following the latest interest-rate cut. The move isn't a sign of panic, “it's a measured cut to prevent inflation-adjusted or real interest rates from rising sharply in a slower inflationary environment,” he told Bloomberg Television on July 6.