January 27, 2023

China October Inflation Eases

Inflation fell from 6.1 percent in September and marked the third straight decline since a peak of 6.5 percent in July, bolstering expectations that price pressures were on a solid downtrend.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge toward more pro-growth policies, although inflation is still too high to expect a cut in interest rates.

“As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger,” said Ting Lu, an economist at Bank of America/Merrill Lynch in Hong Kong.

“Policymakers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged toward pro-growth.

“That said, we don’t expect a major change in monetary policy stance or some high profile moves such as cuts of policy rates and RRR (required reserve ratios).”

The inflation figures soothed investors concerns about a sharp slowdown in China, supporting oil prices and underpinning Chinese shares, although market direction is being largely set by events in Europe.

The 5.5 percent rise in the consumer price index in the year to September was bang in line with expectations from a Reuters poll.

Producer price inflation also showed a marked slowdown to 5.0 percent in October, a one-year low, from 6.5 percent in September. The median of a Reuters poll had forecast an October reading of 5.7 percent.

Economist Lu said the combination of figures suggested his forecast that consumer inflation would drop to 4.6 percent in December may now be too high.

Indeed, Wen suggested prices had continued to fall.

“Since October, overall domestic prices have been falling noticeably,” Wen was quoted as saying by a government website. “Prices of pork and eggs have fallen, but prices of fruit, dairy products, beef and mutton remain at high levels,” he said.

China’s leaders have begun talking in recent weeks about “fine tuning” macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.

But they have also made it clear that stabilizing prices and fighting inflation remain the top priority, so analysts rule out a rate cut or reduction in bank reserve ratios anytime soon.

Most evidence of the fine-tuning has so far been seen through tweaks to tax policy aimed at small and medium-sized businesses and some signs that bank lending to that sector of the economy — which supports 75 percent of China’s jobs — could be relaxed.

“The best way of controlling price rises is to boost production,” said Wen.

The premier also said Beijing would not loosen policies to rein in the red-hot property market, a report on the official Xinhua news agency said.

Wen said the construction of government-subsidized housing projects would help relieve some supply strains and ease housing inflation.

The latest data showed that food prices, a major source of inflationary pressure in China, rose 11.9 percent in October from a year earlier, the smallest annual increase since May.

But they fell 0.2 percent from September, the first decline since May.

“This indicates inflation pressure is indeed slowing,” said Zhang Zhiwei, an economist at Nomura in Hong Kong, who said consumer inflation may drop below 5 percent in November.

“Lower inflationary pressure leaves room for further policy fine tuning. The PBOC has already marginally loosened liquidity by open market operations in October.

“We expect this type of fine-tuning to continue, but RRR and interest rates will be kept unchanged for the rest of 2011.”

RISK OF IMMINENT EASING

While most analysts rule out an immediate cut in interest rates, there is more debate on when the central bank might reduce bank reserve ratios. At 21.5 percent, the RRR is at a record level for big banks.

Article source: http://feeds.nytimes.com/click.phdo?i=0d0a4fbe74417de4a329f980a6a20868

Rising Food and Gas Costs Push Up Consumer Prices

WASHINGTON (AP) — Consumers paid more for gas and food in April, lifting inflation to its highest level in two and a half years. But inflationary pressures have begun to ease this month and analysts say some prices could taper off by summer.

The Consumer Price Index increased 0.4 percent in April, the Labor Department said. In the past 12 months, prices have risen 3.2 percent. That’s the biggest year-over-year gain since October 2008.

Excluding volatile food and energy, prices ticked up 0.2 percent and have risen only 1.3 percent this year. That’s double the gain posted six months ago, but still below the level the Federal Reserve considers a healthy pace of inflation.

The cost of new and used cars, clothing, and medical care all increased, pushing up the core index. Car prices likely increased because of temporary parts shortages caused by the March 11 earthquake and tsunami in Japan. Most other prices were subdued.

Oil prices have fallen from their peak of $114 a barrel earlier this month to about $100 Friday. The prices of corn and other grains have also declined in recent days

Economists say gas and food prices should retreat later this year. High prices are likely slowing the economy in the April-June quarter. But growth should pick up in the second half of this year, they say.

“With commodity prices now dropping back, it looks like inflation is close to peaking,” said Paul Ashworth, chief U.S. economist for Capital Economics. He says year-over-year inflation should climb to 3.5 percent before dropping in the second half of the year.

Cary Leahey, an economist at Decision Economics, said yearly inflation figures should start to decline in the next several months, although core prices should continue to rise. The Federal Reserve won’t need to start raising interest rates until next year to keep inflation in check, he said.

Gas prices rose 3.3 percent in April. That accounts for half last month’s increase. They have soared more than 33 percent in the past year. Demand in fast-growing developing countries and political turmoil in the Middle East have caused oil prices to rise. Prices at the pump have since leveled off near $4. That’s up $1.09 from last year.

Food prices increased 0.4 percent last month. That’s half the previous month’s increase, which was the largest in nearly three years. The price of fresh vegetables fell. Dairy, meat, fish and eggs all rose.

Federal Reserve Chairman Ben Bernanke has said that the impact of higher food and gas prices should be temporary. The central bank has also said it is watching closely for any signs of inflation. Seven months ago, when the core index had risen only 0.6 percent in a year, the Fed was more concerned about falling prices. The October reading was the smallest increase since the index began in 1957.

Article source: http://feeds.nytimes.com/click.phdo?i=aafb22e3744d65a97d81e86d11e11aa3