Times of Oman
Nov 28, 2015 LAST UPDATED AT 12:03 PM GMT
China’s inflation leaves room for monetary policy easing
August 10, 2014 | 12:00 AM
Photo: Bloomberg

Beijing: China's consumer inflation remained below the government's goal in July and factory-gate deflation persisted, suggesting policymakers still have room for monetary easing amid a lack of pressure on prices.

The consumer price index rose 2.3 per cent from a year earlier, the National Bureau of Statistics said in Beijing on Saturday, the same pace as in June and also the median estimate in survey. Factory-gate prices fell 0.9 per cent, matching projections and extending the longest stretch of declines since 1999.

Subdued inflation gives Communist Party leaders leeway to roll out more measures to support the economy after authorities expedited railway spending and freed up money for loans to counter a slowdown earlier in the year. The unexpected decline in imports in July reported August 8 partly reflects sluggish investment, Royal Bank of Scotland said.

"July inflation data should ease any concerns policy makers and investors may have had about rising sequential inflation amid the economic growth rebound," Goldman Sachs economists led by Beijing-based Song Yu said in a note after the report.

"The downward trend shown by food and non-food CPI will leave room for policy makers to maintain relatively supportive policy in the near future."

Analysts' estimates for consumer inflation ranged from 2 per cent to 2.6 per cent. Projections for the decline in producer prices ranged from 0.6 per cent to 1.4 per cent, with a median of 0.9 per cent, following June's 1.1 per cent drop.

Improving trend
Producer prices fell for the 29th straight month, the longest run of declines since 31 months from 1997 to 1999. At the same time, the July drop was the smallest since April 2012, a trend that the statistics bureau said on Sunday shows an improving supply-demand situation in industrial markets.

The yuan strengthened 0.38 per cent against the dollar during the week, the biggest advance in almost two months, as China reported a record monthly trade surplus.

Downward pressure on some prices will continue amid antitrust investigations by the nation's top economic-planning agency. Toyota and Honda's Chinese ventures last week joined Bayerische Motoren Werke (BMW), Daimler's Mercedes-Benz, and Volkswagen's Audi brand in announcing a cut in prices of spare parts after the National Development and Reform Commission said it was probing whether automakers manipulated prices.

Government goal
The government's goal is to keep consumer-price increases within about 3.5 per cent this year while achieving economic growth of about 7.5 per cent, Premier Li Keqiang announced in March.

The housing component of the CPI, which includes rental costs, utilities and building materials, rose 2 per cent from a year earlier in July, the smallest increase in two years.

"Domestic demand is still fairly weak, especially with property in a down cycle, so for the rest of this year I'm not really worrying about inflation pressure," said Larry Hu, head of China economics at Macquarie Securities in Hong Kong.

Trade data released by the General Administration of Customs on August 8 showed overseas shipments rose 14.5 per cent in July from a year earlier and imports fell 1.6 per cent. Surges in sales to the United States and European Union, China's biggest markets, indicate demand from abroad will help sustain expansion.

Australia & New Zealand Banking Group economists said a gauge of online consumer prices from Alibaba Group Holding has been negative for two years and deflation risks may rise if growth momentum weakens.

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