China's inflation eases, more room for stimulus

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CHINA'S inflation eased further in September, giving the government more room to stimulate the slowing economy though analysts see little chance by year's end of any aggressive easing policies.

The Consumer Price Index, a main gauge of inflation, expanded 1.9 percent from a year earlier last month, a bit down from the increase of 2 percent in August and compared with July's rise of 1.8 percent, the National Bureau of Statistics said yesterday.

Food costs, which weigh more than one-third in the basket, gained 2.5 percent last month, much less than the advance of 3.4 percent in August. Costs in the non-food sector upped 1.7 percent from 1.4 percent a month earlier.

The Producer Price Index, a factory-gate measurement of inflation, fell 3.6 percent year on year in September, a seventh monthly fall indicating falling consumer prices in the future.

"Inflation may stabilize at the current level for a while," said Lian Ping, chief economist at the Bank of Communications. "It is within reach for the government to achieve the target of controlling inflation to under 4 percent this year."

In the first three quarters, China's inflation rose 2.8 percent from a year earlier, the bureau's data showed.

Lian also said there is dwindling possibility for China to launch further aggressive easing policies and the country should be more tolerant about slower growth. There have been signs of recovery recently as well.

China's exports grew 9.9 percent on an annual basis in September, the General Administration of Customs said over the weekend. It was a strong rebound thanks to a combination of factors including better Christmas orders, a low base effect and the broadening of government export tax rebate policies. Together with better imports, they gave hope for a soft landing in the fourth quarter, some analysts said.

However, Chang Jian, an economist at Barclays, suggested China should have supportive measures in place to sustain its growth in the longer run.

"The September inflation data are largely in line with our expectation," Chang said. "The modest near-term inflation pressures, however, do not change our monetary policy view: While this year's inflation rate is fine, China's medium-term inflation risks remain significant."

Chang noted a further interest rate cut in the fourth quarter may be constrained by concerns about a rebound in property prices, and the use of repurchase agreements could further delay the reserve requirement ratio cut that enriches liquidity in the banking system.

China's gross domestic product expanded 7.6 percent annually in the second quarter, the slowest in three years. The third-quarter growth, to be released on Thursday, is expected to be as low as 7.3 percent.

Chris Leung, a senior economist at DBS Bank, said compliments should be given to Chinese authorities who have successfully resisted the temptation of extreme monetary loosening or a gigantic fiscal stimulus.

"Judging from China's ongoing prudence on macroeconomic management hitherto, in spite of decelerating growth and falling CPI, policy-makers understand what they are doing," Leung said. "This should be viewed as a source of comfort and reason for optimism going forward."

Leung said he expected a clearer road map of structural reforms will be unveiled next year and much change thereafter.

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