China Inflation Muted Leaves Room for Extra Stimulus: Economy
China’s inflation stayed subdued in July while factory-gate prices fell for a 17th month, giving Premier Li Keqiang more room to boost stimulus should an economic slowdown deepen.
The consumer price index rose 2.7 percent in July from a year earlier, the National Bureau of Statistics said today in Beijing. That was less than the 2.8 percent median estimate in a Bloomberg News survey and the government’s full-year target of 3.5 percent. Producer prices fell 2.3 percent after a 2.7 percent drop the previous month.
The reports reflect a growth deceleration that’s left the world’s second-largest economy poised for the weakest expansion in 23 years. China last month announced what Bank of America Corp. called a “small stimulus” while pursuing reforms that include ordering more than 1,400 companies in 19 industries to cut excess production capacity this year.
“The muted inflation reading will provide necessary room for implementing a mini fiscal stimulus and avoiding monetary tightening,” Lu Ting, Bank of America’s head of Greater China economics in Hong Kong, said in a note today. “Improving investment demand and inventory restocking” may help the producer price index (SHCOMP) turn positive on a month-over-month basis in the coming months, Lu said.
The Shanghai Composite Index of stocks rose 0.2 percent as of 10:53 a.m. local time.
Data are due from the statistics bureau at 1:30 p.m. today on July’s industrial production and retail sales and January-July fixed-asset investment. The central bank will publish credit and money supply numbers over the next week.
Trade Rebound
China’s exports rose 5.1 percent in July from a year earlier, while imports gained 10.9 percent, the customs administration said yesterday.
Consumer prices rose 2.7 percent in June from a year earlier. Estimates for July inflation in a Bloomberg News survey of 47 analysts ranged from 2.5 percent to 3.2 percent. The CPI rose 2.4 percent in the first six months of the year.
Food prices rose 5 percent from a year earlier in July, the statistics bureau said today, after a 4.9 percent gain in June.
The decline in producer prices compares with the median estimate for a 2.1 percent drop in a Bloomberg News survey. The index has fallen for 17 straight months, the longest stretch of declines since 2002. Prices fell 0.3 percent in July from June, after a 0.6 percent drop the prior month.
The producer-price data are in line with a gain in the official manufacturing Purchasing Managers’ Index and show that China’s policies to stabilize growth are working, the statistics bureau said in a statement today.
Inflation Goal
The government said in March it aimed to keep the inflation rate within 3.5 percent for this year. Consumer prices rose 2.6 percent in 2012, less than half 2011’s pace. China’s central bank last week signaled concern that price pressures will increase, saying in a quarterly report that the country can’t be “blindly optimistic” on inflation and that it will continue to guide and stabilize expectations.
“Inflation clearly is not a big issue for this year,” Chang Jian, China economist at Barclays Plc in Hong Kong, said on Bloomberg Television. The producer-price figures are a “reflection of the severe overcapacity in many industries,” Chang said.
Authorities are trying to keep costs of consumer goods down. China this week fined six dairy companies including Mead Johnson Nutrition Co. and Danone a combined 669 million yuan ($109 million) for price fixing, a record penalty for violating anti-monopoly laws.
“Stable and relatively low inflation” that’s below the annual target “will allow the government to continue stimulating growth without worrying too much about the risk of stoking price pressures,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.
Elsewhere in the world today, Russia will probably report economic growth accelerated for the first time in six quarters, based on the median estimate of analysts surveyed by Bloomberg. France gives figures on June industrial production and the U.S. publishes data on wholesale inventories.
Source: Bloomberg
