China's inflation trends point to steadying economy

Increasing prices of non-food items stabilise headline inflation; central bank may avoid new monetary easing

BEIJING • China's consumer price inflation slowed to its weakest pace in almost a year last month, pulled down by abating food costs, although an encouraging moderation in producer price deflation added to growing evidence of a steadying economy.

Indeed, the broader inflation trends shown in yesterday's data confirm recent signs of a more sure-footed recovery of the world's second-biggest economy, allowing the authorities to resist any fresh monetary easing as they move to curb an unsustainable build-up of credit in the financial system.

"The picture is still one of rising price pressures, and for that reason I'd be sceptical of claims this latest drop in inflation is going to increase the likelihood of further monetary easing by the central bank," said Capital Economics' China economist Julian Evans-Pritchard.

"What's holding them back from further easing is not inflation concerns, it's concerns of credit risks."

A housing and construction rebound has boosted industries, such as steel and coal, and, while many sectors continue to struggle with overproduction, domestic demand has held up reasonably well, with trade data on Thursday showing a surprising improvement in imports.

A supermarket in Beijing. Slowing food prices curbed China's consumer price inflation in August. PHOTO: EUROPEAN PRESSPHOTO AGENCY

The consumer price index rose 1.3 per cent last month from a year earlier, compared with a 1.8 per cent increase in July, the National Bureau of Statistics said yesterday. That was the slowest pace of inflation since last October.

Consumer inflation has remained well below China's official target of around 3 per cent this year, despite concerns that severe summer flooding would ramp up inflationary pressures. Food prices were up 1.3 per cent last month, compared with a 3.3 per cent year-on-year gain in July. Prices of pork, China's staple meat, rose only 6.4 per cent versus a 16.1 per cent increase in July.

Importantly, non-food prices showed that headline inflation remained stable, rising 1.4 per cent, unchanged from July. The statistics bureau data showed that a 4.3 per cent year-on-year increase in healthcare costs and a 4.5 per cent rise in "other goods and services" were the main drivers.

The producer price index dropped 0.8 per cent last month from a year earlier, the slowest pace of decline since April 2012. China factory prices have been falling since March 2012, but a turning point could be on the horizon as the industrial sector improves on the back of a housing recovery, and commodity prices bounce globally.


A version of this article appeared in the print edition of The Straits Times on September 10, 2016, with the headline 'China's inflation trends point to steadying economy'. Print Edition | Subscribe