China's inflation eases, as economy slows further

AP News
Posted: May 11, 2012 2:47 AM
China's inflation eases, as economy slows further

China's economy is slowing further, defying hopes it may have "bottomed out," with data for April showing sharper than expected declines in investment and industrial production.

Data released by the National Bureau of Statistics on Friday showed inflation also eased, to 3.4 percent in April from 3.6 percent the month before, giving the government greater leeway to ease policy to boost growth.

A reading of the latest data suggests more aggressive action may be needed to get the world's second-largest economy back on track, economists said.

In particular, industrial production rose 9.3 percent from a year earlier in April, slowing from a nearly 12 percent increase in March.

"China's economy is even weaker than thought, with industrial production growth back in single digits for the first time since the global financial crisis and electricity production flat lining," said Alistair Thornton of IHS Global Insight.

"We believe the government will step up efforts to stimulate the economy, even as genuine concerns remain regarding the very real possibility of over-stimulating," he said.

China's economy grew 8.1 percent in the first quarter of the year, a still robust rate but its slowest pace since 2009. It was below the previous quarter's 8.9 percent, but above the government's 7.5 percent target for the year.

China's leaders face a challenge in keeping inflation under control while spurring growth. Rising pressures from wages and other costs are squeezing businesses. Consumers are feeling a pinch, too, as already high prices outstrip rising incomes.

Yang Kai, a 28-year-old patent attorney, recently moved from one eastern city, Hangzhou, to Xiamen, further south, aiming to be closer to his hometown and take advantage of more affordable housing. But price hikes are catching up with him.

"Moving was expensive. I guess that's because of higher fuel and labor costs. But prices for new appliances are also higher, though the most obvious example is food," Yang said.

"I still spend the same amount on food, but I don't go to good restaurants as often as before," he said.

Other data reported Friday showed investment in factory equipment and construction, so-called fixed-asset investment, rose 20.2 percent in January-April. That compared with a 25.4 percent rate of increase a year earlier.

Investment in real estate climbed 18.7 percent, down from 34.3 percent growth in the first four months of last year and from 23.5 percent growth in January-March.

The figures come a day after China announced that its trade surplus widened in April as imports barely budged, sharpening fears the economy is not doing enough to stimulate domestic demand and counter a slowdown.

Already, there are signs that China's slowdown is hurting demand for oil, industrial components and consumer goods at a time when U.S. and European growth are weak.

Last year's unexpectedly steep plunge in demand for China's exports due to U.S. and European economic woes prompted communist leaders to reverse course and ease controls on bank lending to help struggling manufacturers.

Further easing measures are expected, with most analysts predicting the central bank will soon reduce reserve requirements for commercial banks.

Growth has fallen steadily since 2010 as a slump in global demand battered exporters and Beijing tightened lending and investment curbs to cool an overheated economy and surging inflation.

April's moderation in the consumer price index was aided by an easing in costs for food and housing. Food price inflation slipped to 7 percent from 7.5 percent in March.

Meanwhile, the producer price index of costs for manufacturers, fell 0.7 percent. That largely resulted from falling commodity prices, but could ease future price pressures.

However, wages and rental prices are rising in the longer term, noted ANZ in a commentary.

"We remain cautious on China's inflation outlook. Price reforms will continue to add pressure to China's structural inflation," it said, adding that "for the foreseeable future we expect to see significant increases in utility prices such as water, electricity, and fuel."


Researcher Fu Ting contributed to this report.


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