China inflation dips, yet policy on pause

Fri Oct 14, 2011 5:59am EDT
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By Aileen Wang and Koh Gui Qing

BEIJING (Reuters) - China's consumer inflation dipped to 6.1 percent in September, retreating further from three-year highs, although stubborn food price pressures will deter the central bank from loosening its policy reins anytime soon.

A slowdown in price rises would be welcomed by policymakers as confirmation that a flurry of increases in interest rates and bank reserve requirements is working, just when China's economy is showing increasing strains from the global downturn.

Since inflation is still close to the three-year peak of 6.5 percent hit in July, few analysts believe China will follow the likes of Brazil, Indonesia and Singapore and ease policy in the near-term, barring a marked deterioration in Europe's debt woes.

Indeed, September's data for bank lending and money supply, controlled by China to manage inflation, is proof of Beijing's tight monetary policy.

"The slowdown in the CPI last month is not drastic enough to reduce inflationary expectations, and it is still too early to confirm an easing trend in price pressures," said Qiao Yongyuan, an analyst with CEBM in Shanghai.

"The central bank is more likely to keep its current monetary stance unchanged and will wait for data in coming months to judge the direction of policy," Qiao said.

The broad M2 measure of money supply rose 13 percent in September from a year ago, less than forecast and the weakest clip since October 2001.

Yuan loans lent by banks also came in weaker than expected at 470 billion yuan ($73.6 billion), lows not seen since December 2009.   Continued...

<p>An employee pulls a trolley loaded with boxes of products at a supermarket in Wuhan, Hubei province, October 13, 2011. REUTERS/Stringer</p>