China August inflation at 2 percent, narrows room to ease

Sun Sep 9, 2012 12:10am EDT
 
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By Langi Chiang and Nick Edwards

BEIJING (Reuters) - China's annual rate of consumer inflation ticked up to 2.0 percent in August from July's 30-month low of 1.8 percent, official data showed on Sunday, suggesting that room to ease monetary policy to shore up growth may be narrowing.

Economists polled by Reuters had forecast inflation to pick up to 2.0 percent in August.

Month on month, however, inflation was a touch ahead of forecasts, up 0.6 percent in August versus July. Analysts had anticipated a rise of 0.5 percent. Food inflation was up 3.4 percent on a year ago while non-food prices rose 1.4 percent.

"Inflation is coming back quickly. Together with rising home prices, it will limit the scope for further policy relaxation," said Dong Xian'an, economist with Peking First Advisory.

Separately, the National Bureau of Statistics said China's producer price index dropped 3.5 percent in August from a year earlier, which compared to forecasts for a 3.3 percent decline.

It marked the sixth straight month of producer price deflation, putting a further squeeze on corporate profits already dampened by a drop-off in demand at home and abroad courtesy of global economic headwinds stemming from Europe's sovereign debt crisis.

Investors widely expect the central bank to ease monetary conditions further as part of the government's campaign of "policy fine-tuning" unveiled in the autumn of 2011.

The People's Bank of China has cut interest rates twice since June and trimmed banks' required reserve ratios (RRR) in three 50 basis point steps since last November that has freed an estimated 1.2 trillion yuan ($190 billion) for new lending.   Continued...

 
A vendor waits for customers inside his stationery stall in Shenyang September 9, 2012. China's annual rate of consumer inflation ticked up t o 2.0 percent in August from July's 30-month low of 1.8 percent, official data showed on Sunday, suggesting that room to ease monetary policy to shore up growth may be narrowing. REUTERS/Stringer