China’s inflation slides to 5-year low
Print Edition
CHINA’S inflation rate in September fell to its lowest level for almost five years, the National Bureau of Statistics said yesterday.
The consumer price index rose just 1.6 percent year on year in the month, its smallest increase since January 2010 and down from 2 percent in August, the bureau said.
Meanwhile, the producer price index, a measure of inflation at the factory gate, fell 1.8 percent last month, after slipping 1.2 percent in August. The slide was mostly fueled by destocking amid sluggish domestic demand.
Zhou Hao, an economist at Australia & New Zealand Banking Group, said the slump in inflation was bigger than expected and highlighted the need for further policy easing from the central government.
“China’s soft inflation profile heightens the risk of deflation,” Zhou said.
“The country needs more monetary policy easing to support the economy.”
Indeed, the central bank took action before the inflation figures were released. On Tuesday morning, it lowered its 14-day repurchase rate by 0.1 percentage points, making it cheaper for banks to borrow money.
“China has stepped up its policy easing,” said Wendy Chen, an economist at Nomura.
“We continue to expect another cut in the bank reserve requirement ratio in the final quarter of the year,” she said.
The lower inflation rate also paves the way for a possible move on monetary policy, Zhou said.
The central bank exhibited a clear bias toward loosening policies after injecting liquidity into the market and relaxing policies on property loans late last month, Zhou said.
The dip in consumer prices was largely due to lower food costs, which gained just 2.3 percent in September, slowing from 3 percent in August.
Yu Qiumei, an economist with the NBS, said the figures were a byproduct of the anti-graft and frugality campaign, which resulted in prices rising only slightly during the Mid-Autumn Festival and National Day holidays compared with last year.
Tobacco and liquor prices have been falling steadily since September 2013, Yu said.
The sluggish demand reflected by the PPI figures was in contrast to the buoyant trade data released on Monday, which showed that imports grew 7 percent in September, suggesting relatively strong domestic demand.
But there are yet more factors to be considered, said Wang Tao, an economist at Swiss bank UBS.
“We need more evidence of a stabilizing economy,” she said, pointing to the planned release on Tuesday of September’s industrial production, fixed-asset investment and retail sales figures. China’s third-quarter gross domestic product figure will be published on the same day.
Goldman Sachs has cut its forecast for China’s economic growth to 7.1 percent for both the third and fourth quarters, down from 7.3 percent and 7.2 percent respectively, while its full-year forecast remains unchanged at 7.3 percent.
The government’s full-year growth target is 7.5 percent.
In the first three quarters, China’s CPI rose 2.1 percent year on year, while the PPI dropped 1.6 percent, the NBS said.
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