China inflation hits seven-month low, eases tightening fears

BEIJING Thu Jan 9, 2014 9:46am IST

Customers choose goods at a shop in Beijing October 14, 2013. REUTERS/Kim Kyung-Hoon/Files

Customers choose goods at a shop in Beijing October 14, 2013.

Credit: Reuters/Kim Kyung-Hoon/Files

Related Topics

BEIJING (Reuters) - China's annual consumer inflation slowed more sharply than expected to a seven-month low of 2.5 percent in December, easing market fears of tighter monetary policy rates although the central bank is tapping the brakes on bank liquidity.

Rising money market rates and bond yields indicate the People's Bank of China (PBOC) is tightening liquidity conditions to reduce debt levels and contain credit growth, but there is little sign of a sharp turnaround in its policy stance.

The central bank has pledged to continue to maintain prudent monetary policy in 2014 and keep reasonable money and credit growth to support the real economy.

"Inflation pressures remain modest, which will allow policymakers to continue focusing on policies to support growth while implementing structural reform measures in 2014," said Xiaoping Ma, an economist at HSBC in Beijing.

The drop in inflation last month, from November's print of 3 percent, was sharper than a fall to the 2.7 percent rate expected by the market, slowed by volatile food costs.

PRICE PRESSURES TO PICK UP IN 2014

Food prices rose 4.1 percent in December from a year earlier, slowing from November's 5.9 percent rise, the National Bureau of Statistics said on Thursday.

Month-on-month, consumer prices rose 0.3 percent versus 0.4 percent expected by economists.

But analysts warn inflation may quicken in coming months as the government pushes market-oriented reforms to liberalise energy and utility prices.

"While CPI inflation came in lower than expected, the January figure will likely exceed 3 percent again due to the Chinese New Year effect," said Zhou Hao, an economist at ANZ in Shanghai.

"Inflation could exceed 3.5 percent in the second half of 2014, as upcoming pricing reforms could push up commodity and public utility prices. Therefore, we think that CPI inflation will be 3.2-3.4 percent on average this year."

DELEVERAGING

Analysts expect the Chinese authorities to rein in the sprawling shadow banking sector under their long-term deleveraging drive in a bid to put the world's second-largest economy on a more sustainable footing.

Reuters reported earlier this week that the State Council, China's cabinet, had issued new policies to strengthen regulation of off-balance-sheet lending in an effort to contain the risk of a debt crisis.

China's inflation was 2.6 percent over the whole of 2013, well within the government's target limit of 3.5 percent, the bureau said. Analysts believe the government will also stick with the 3.5 percent inflation target this year.

The bureau also said that China's producer prices fell 1.4 percent last month from a year earlier - the 22nd consecutive month of decline - versus the same rate of factory price deflation in November.

The inflation news precedes December trade figures due on Friday and fourth-quarter gross domestic product data due on Jan 20.

Economists polled by Reuters forecast annual economic growth could slow to 7.6 percent in the fourth quarter from 7.8 percent in the previous quarter, putting 2013 GDP expansion on track for the weakest showing in 14 years.

Chinese leaders have pledged reasonable growth in 2014, and sources at top government think tanks told Reuters they expect a growth target of 7.5 percent, the same as for 2013.

(Editing by Eric Meijer & Kim Coghill)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Consumer Confidence Index

REUTERS SHOWCASE

Corruption Probe

Corruption Probe

India to probe corruption in healthcare after TV sting.  Full Article 

Food Scandal

Food Scandal

Starbucks, Burger King dragged in as China food scandal spreads.  Full Article 

Bigger iPhones

Bigger iPhones

Apple asks suppliers to produce up to 80 mln large-screen iPhones - WSJ.  Full Article 

Gaza Conflict

Gaza Conflict

Israel keeps up Gaza assaults, Kerry presses for truce.  Full Article 

Ukraine Crash

Ukraine Crash

Bodies, black boxes handed over from Ukraine crash site.  Full Article 

Bali Trade Deal

Bali Trade Deal

India keeps world guessing in countdown to landmark trade pact deadline.  Full Article 

Bangalore Sex Abuse

Bangalore Sex Abuse

Modi's BJP puts political twist on local sex abuse case   Full Article 

Yahoo to buy Flurry

Yahoo to buy Flurry

Yahoo to buy analytics startup Flurry to bolster mobile ad business.  Full Article 

Wholesale Biz

Wholesale Biz

Wal-Mart adds $102.9 million in Indian wholesale business in June.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage