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China's inflation rate eases as economy cools
China's inflation moderates to 6.2 percent in August, easing pressure for tight money policies
By The Associated Press

SHANGHAI (AP) ' China's inflation rate retreated from a three-year high in August as food price increases moderated, suggesting Beijing may be able to hold off on further monetary tightening as it copes with a slowing global economy.

Consumer prices in the world's second-largest economy rose 6.2 percent over a year earlier, cooling from 6.5 percent in July, the National Statistics Bureau said Friday.

It said industrial production also slowed in August, rising 13.5 percent from the year before, compared with a 14 percent increase in July.



While inflation is still way above the government's 4 percent target for the year, the latest figures suggest that repeated interest rate hikes and other curbs meant to chill the overheated economy are taking hold. That could allow China's leaders greater leeway for policies aimed at keeping economic growth on track, as the U.S. and European outlook worsens.

Less pressure from inflation "would remove a significant barrier to further policy stimulus in the event of a slump in global demand," said Mark Williams, of Capital Economics, in a report.

Food prices, which comprise a large share of the consumer price index, climbed 13.4 percent, down from 14.8 percent in July. A 29.3 percent surge in prices for meat and poultry and 12.2 percent increase for staple grains, though, kept food price increases relatively strong.

"China's inflation is down, but not out," said Alistair Thornton, an economist for IHS Global Insight.

"The moderation in inflation is not broad based," he said, attributing it mainly to slower increases in pork prices, which still jumped 45.5 percent from a year earlier.

Many Chinese are stretching to make ends meet.

"Everything is so expensive," said Zhu Limei, a 30-year-old interior designer who is fretting over the 20 percent jump in the cost for her wedding banquet next month.

"For us young people, especially those not from rich families like us, life is really tough. Both my boyfriend and I work hard and try to cut costs, but it's still not enough," Zhu said.

Added to surging food prices are increases in non-food inflation, which rose to 3 percent in August. Among the highest increases was a 14.9 percent climb in costs for diesel and gas.

While visiting China earlier this week, World Bank President Robert Zoellick cautioned that inflation remains the country's key policy concern, echoing similar statements by Premier Wen Jiabao.

Surging prices also complicate Beijing's efforts to promote retail spending and other domestic consumption and reduce reliance on exports and investment. Spending on new factories and other investments has accounted for more than 40 percent of China's output over the past decade ' several times that of the United States, Japan and other major economies.

Such spending rose 25 percent in January-August to 18.06 trillion yuan ($2.8 trillion), the statistics bureau reported. Lavish investments by local governments, which rose 28 percent so far this year to 17 trillion yuan ($2.7 trillion) is driving concern over the potential for a debt crisis given the likelihood of low returns on that spending, often on showcase construction projects.

Retail spending in August remained robust, climbing 17 percent to 1.5 trillion yuan ($234.4 billion), just slightly below the figure for July.

The U.S. and major European economies look likely to stagnate or go into reverse, the Organization for Economic Cooperation and Development said Thursday, slashing its growth forecasts for much of the developed world.

The fragility of major export markets could prod China into easing credit to keep demand at home steady, despite Wen's insistence that a formal change in policy will only happen once inflation has fallen significantly, said Williams.

"Nonetheless, we would not be surprised if controls on credit growth were quietly eased much sooner, particularly if the global outlook worsens," he said in a report issued before Friday's figures were released.

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Online:

National Bureau of Statistics (in Chinese):

http://www.stats.gov.cn


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