Tame China inflation takes pressure off policymakers

Mon Oct 15, 2012 2:28am EDT
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By Lucy Hornby

BEIJING (Reuters) - Benign inflation in September showed China has scope to ease policy even as evidence mounts that earlier pro-growth measures are gaining traction, reducing the pressure on policymakers to act as a once-a-decade leadership transition approaches.

Signs that lending is finally perking up, the approaching end to the destocking cycle and stable employment could allow policymakers to argue that steps taken earlier this year to support the economy in the face of strong global headwinds have worked.

Subdued consumer prices, meanwhile, leave plenty of space for them to act to spur faster growth in the winter after a new generation of leaders takes over the ruling Communist Party.

China's consumer price inflation eased to 1.9 percent in September from August's 2.0 percent, while producer prices dropped 3.6 percent from a year earlier. Both numbers matched the forecast of economists polled by Reuters.

That followed weekend data that showed export growth had rebounded to nearly twice the rate expected in September alongside broad increases in credit and money supply.

"Alongside the positive turn in September exports, slowly accelerating broad money and credit growth will, we believe, keep Wen's administration from further monetary accommodation," said Tim Condon, head of Asian research for ING in Singapore.

"We reiterate our view that incoming (Premier) Li will have more scope to increase accommodation and that he will use it."

Wen Jiabao is expected to be succeeded as China's top economic policymaker by Li Keqiang after the party's congress in November.   Continued...

A vendor arranges tofu on her stall as she waits for customers at a market in Huaibei, Anhui province, October 15, 2012. China's annual consumer price inflation ticked down to 1.9 percent in September from August's 2.0 percent, official data showed on Monday, leaving plenty of room for further policy easing to shore up growth. REUTERS/Stringer