Bloomberg News

China Inflation Cools to 15-Month Low, Presages Easing: Economy

January 12, 2012

Jan. 12 (Bloomberg) -- China’s inflation cooled to a 15- month low and producer-price gains were the smallest in 2 years in December, leaving the government more room to support growth as a global slowdown hurts exports.

Consumer prices rose 4.1 percent from a year earlier, the National Bureau of Statistics said in Beijing today. That compares with the median estimate of 4 percent in a Bloomberg News survey of 26 economists and 4.2 percent in November.

Today’s data may allow Premier Wen Jiabao to proceed with a shift in policy focus to bolstering expansion as Europe’s debt crisis crimps overseas demand and officials sustain a campaign to cool property prices. Imports and exports increased the least in two years last month, excluding seasonal distortions, and a report next week may show the world’s second-largest economy expanded at the slowest pace in 10 quarters.

“Inflation will no longer be a constraint on policies and officials will look more to other economic data to decide if there is a need to ease policies,” said Ken Peng, a Beijing- based economist with BNP Paribas SA, the only bank to correctly forecast the inflation reading. “Still, policy makers may remain wary of inflation for a while because the number still exceeded the yearly target.”

Stocks in China erased gains made after the data were released. The benchmark Shanghai Composite Index rose as much as 0.8 percent before closing little changed. Asian stocks fell, with weaker Japan trade data overshadowing speculation that slower inflation in China may result in monetary-policy easing. The MSCI Asia Pacific Index fell 0.2 percent at 4:27 p.m. in Tokyo.

Exceeding Target

China’s statistics bureau said that in 2011, consumer prices rose 5.4 percent, exceeding the government’s target of 4 percent set at the beginning of the year. Policy makers haven’t yet published an inflation goal for this year. Economists’ forecasts released last month ranged from 2 percent at Standard Chartered Plc to 4.4 percent at Credit Suisse Group AG.

Elsewhere in Asia, Indonesia kept interest rates unchanged for a second month, extending a pause in monetary easing as a weakening rupiah and a government plan to contain fuel subsidies threaten to spur inflation. In India, industrial production rebounded from the worst month since March 2009, a sign consumer demand is withstanding record interest-rate increases.

Later today, Europe’s two biggest economies report December inflation data. A gauge of consumer prices in France rose 0.3 percent from a month earlier, according to the median estimate of 10 economists in a Bloomberg News survey. They gained 0.7 percent in Germany in the month, the median of 21 estimates indicated final data will show.

ECB Decision

Italy and the U.K. report industrial production for November today. Output in Italy declined 0.2 percent, according to a survey of 17 economists, and fell 0.1 percent in the U.K., a separate poll showed.

Also in the U.K., the Bank of England is expected to keep its benchmark interest rate unchanged at 0.5 percent, according to a survey of 53 economists, and maintain its asset purchase target at 275 billion pounds, the median of 41 estimates showed.

The European Central Bank is also predicted to keep borrowing costs unchanged at 1 percent this month, according to a Bloomberg News survey of 53 economists.

Separately, Greece is due to report unemployment for October today or tomorrow, with the data forecast to show the jobless rate climbed to 18 percent from 17.5 percent a month earlier.

In the U.S., retail sales probably rose 0.3 percent in December from a 0.2 percent gain the prior month, according to the median of 75 estimates in a Bloomberg News survey. Initial jobless claims in the U.S. edged up to 375,000 in the week ended Jan. 7, the median of 45 estimates showed.

Food Prices Climb

A Treasury Department release in Washington will show the U.S. budget deficit widened in December to $83.7 billion from $78.1 billion a year earlier, a survey of 27 economists showed.

Inflation in China may see a “one-off” rebound this month amid increased consumer spending before the Chinese Lunar New Year holiday and winter disruptions to food supplies, according to Lu Ting, a Hong Kong-based economist at Bank of America Corp. Wholesale prices of 18 vegetables tracked by the Ministry of Commerce continued to climb in the first week of January from the previous seven days, after rising throughout December, according to government data.

Gains in food prices accelerated to 9.1 percent in December from a year earlier, as vegetable and seafood costs climbed, today’s report showed. Non-food prices increased at the slowest pace in a year.

Reserve-Ratio Cuts

China’s economic growth may have slowed to 8.7 percent from a year earlier in the fourth quarter of 2011, according the median estimate of 25 economists in a Bloomberg News survey. The data is due for release on Jan. 17. UBS AG estimates the pace of expansion may slow to 7.7 percent this quarter. That would trigger “more visible” policy easing and lift domestic investment from the second quarter, according to the bank’s Hong Kong-based economist Wang Tao.

The People’s Bank of China cut banks’ reserve requirement ratio last month, the first since 2008, to encourage lending. BNP estimates four to five reductions this year with the first probable after the Lunar New Year holiday that starts Jan. 23. The bank sees inflation averaging 3.6 percent this year.

Easing global commodity prices have helped cool raw material costs in China, the world’s largest consumer of iron ore and copper. Producer prices rose 1.7 percent in December from a year earlier, today’s report showed, in line with the median estimate in a Bloomberg survey, after a 2.7 percent gain the previous month.

Stabilizing Prices

While controlling inflation is not as urgent a task as it was last year, stabilizing consumer prices is still high on the government’s agenda and efforts to rein in excessive gains won’t be relaxed, People’s Bank of China Governor Zhou Xiaochuan said in interviews with Caixin magazine and the Xinhua News Agency over the past two weeks. More than two thirds of households in a central bank survey last month said prices are too high.

Factory workers from lingerie maker Top Form International Ltd.’s Shenzhen plant to Pangang Group Chengdu Steel Vanadium & Titanium Co. in western China have gone on strike for higher pay in the past two months. LG Display Co., agreed to double year- end bonuses last month in eastern China’s Nanjing plant after more than 2,000 workers took part in a protest, the state-run Xinhua News Agency reported Dec. 29.

--Li Yanping. With assistance from Michael Heath in Sydney. Editors: Nerys Avery, Brendan Murray

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net


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