January 12th, 2012
Econintersect: The National Statistics Bureau of China reports that the country’s Consumer Price Index (CPI), a main inflation gauge, rose 4.1% in December, year-over-year. This was the fifth consecutive month of lower inflation from a year earlier and was the slowest since September 2010. Food remains a problem area for inflation with a 9.1% increase year-over year and actually increased from 8.8% in November. While the current rate for December is close to the government’s 4% target, the Shanghai Daily says the total CPI increase for the year was 5.4%.
The inflation trend may expand China’s options to respond to possible economic weakness. From the Financial Times:
Analysts said that seasonal factors were partly to blame for the more moderate dip in inflation, as Chinese New Year falls earlier in 2012 than in recent years, fueling a mini-spending splurge in December, which helped push up food prices.
“This continued moderation in prices pressures is a welcome development and will increase the scope for policy to respond should growth start to weaken more sharply in coming months,” said Brian Jackson, an economist with Royal Bank of Canada in Hong Kong
China has been taking cautious steps to stop and start to reverse the monetary tightening undertaken in the second half of 2011 to slow down the inflation surge that peaked in July. A number of signs have emerged that China’s economy is slowing, including a shrinking trade surplus, two months of contraction in manufacturing and declining home prices.
According to the Financial Times the monthly decline was only 0.1% which was much smaller than the declines of 1.3% and 0.3% reported in GEI News for November and October, respectively. There is reason to hope that moderation of inflation could continue because lower pricing pressures appear to be in the pipeline with PPI (Producer Price Index) only at 2.7% for wholesale prices in November.
The CPI is down sharply from a 37-month high of 6.5% in July.