August inflation shows signs of recovery

Citizens select vegetables at a market in Shanghai, East China, Aug. 9, 2013. China's consumer price index (CPI), a main gauge of inflation, grew 2.7 percent year on year in July, staying flat from the figure for June, the National Bureau of Statistics (NBS) announced on Friday. Photo: Xinhua

Chinese Premier Li Keqiang on Monday called on the global community to keep confidence in the ability of emerging economies to cope with current challenges, as China saw moderate inflation in August.

Some emerging economies have been influenced by expectations that major developed countries might withdraw from quantitative easing monetary policies, Li said.

However, emerging economies have still seen stable economic development in general, implemented flexible exchange rate mechanisms and achieved greater foreign exchange reserves, Li said, adding that emerging economies are capable of coping with current challenges, and the international community should have confidence in them.

Li made the remarks while meeting with Chairman of the World Economic Forum (WEF) Klaus Schwab at the Summer Davos Forum in Dalian, Liaoning Province.

China's moderate inflation in August boosted confidence about stable growth and a recovery in the world's second-largest economy. Analysts said the central government is expected to continue its current pro-growth policies.

The consumer price index (CPI) rose 2.6 percent in August, down from 2.7 percent in July, the National Bureau of Statistics said Monday.

The producer price index (PPI), a gauge of inflation at the wholesale level, declined 1.6 percent year-on-year in August. This was less than the drop of 2.3 percent in July.

"These two inflation readings should be positive to the market," Lu Ting, China economist with Bank of America Merrill Lynch, said in a research note sent to the Global Times Monday.

Lu noted that the low CPI inflation means the new government still has plenty of room for bolstering growth via implementing a mini fiscal stimulus and avoiding monetary tightening, while the rising PPI inflation suggests the economy has been recovering.

To ensure stable economic growth, the Chinese government set the target of holding consumer inflation to around 3.5 percent this year, at the annual central economic work conference held in December.

Chinese Premier Li Keqiang wrote in a column for Financial Times Monday, reiterating that the "upper limit" of 3.5 percent growth for CPI is meant to prevent inflation. If the economy "is kept within this reasonable range and financial risks are effectively forestalled, the market and society will have stable expectations," Li wrote.

Through analyzing the inflation growth momentum, Zhuang Jian, a senior economist at the Asian Development Bank in China, predicted that the year-on-year CPI inflation will possibly stay at 2.5 percent this year.

But Zhuang thought the slower year-on-year growth of CPI in August compared with July was mainly due to a low base of comparison last year, and "some uncertain factors, including rising pork prices, should be paid much attention to," Zhuang said.

The year-on-year food price index in August fell to 4.7 percent from 5.0 percent in July, mainly driven by a sharp decline in vegetable prices. However, the meat price index climbed to 7.2 percent from 5.9 percent, with the pork price index doubling to 6.0 percent from 3.0 percent, the NBS data showed.

Zhuang said, "There is no reason for the central government to change its current pro-growth policies" in consideration of the macro-economic situation. Any monetary tightening is unlikely "unless the central government feels difficulties in achieving the 7.5 percent GDP growth this year," Zhuang noted.