Judy Hua and Kevin Yao Beijing
CHINA’s consumer inflation slowed more than expected last month to a near five-year low, adding to concerns that global growth is cooling fast unless governments take bolder measures to shore up economies.
While much of the decline was due to falling prices for food, fuel and other commodities, which are benefiting consumers globally, the data also pointed to broad weakness in the second-largest economy.
Facing mounting risks to growth and rising risks of deflation, Beijing is widely expected to continue rolling out a steady stream of stimulus measures in coming months, although most economists believe it will hold off on more aggressive action, such as an interest rate cut, unless conditions sharply deteriorate.
“Policymakers in Beijing should begin to be concerned that global disinflationary pressures are spreading to China,” Dariusz Kowalczyk, the senior economist at Credit Agricole CIB in Hong Kong, said.
“The low inflation readings will open the door to further targeted monetary and fiscal easing. There is also less need for a strong currency to offset imported inflation.”
The consumer price index (CPI) rose 1.6 percent in September from a year earlier, the National Bureau of Statistics said yesterday, missing market expectations for a 1.7 percent rise and down from 2 percent in August. The reading was the lowest since January 2010, and was also partly due to a relatively higher base of comparison a year ago, officials said.
Inflation is also easing in other parts of Asia – from India to South Korea – where the economy is sputtering and facing growing fears of deflation.
But price softness in China was not all down to food and fuel. Its data also showed further downward pressure from the cooling housing market, which economists say is the biggest single risk facing China’s economy.
The CPI rose 0.5 percent in September from the previous month, versus a 0.4 percent gain expected by economists.
“The low inflation readings suggest rising risks of deflation in China due to weak domestic demand. It confirms our view that risks to growth are still on the downside, and further policy easing measures are needed,” HSBC economists said.
With inflation below the official annual target of 3.5 percent, Chinese policymakers have ample scope to announce more stimulus, on top of a flurry of steps earlier in the year.
But as Japan and many western countries have found, simply injecting a mountain of money into the system may have limited impact on the real economy if demand is too weak to absorb it and banks remain reluctant to lend. – Reuters