China's industrial output grew at a slower pace in July while inflation unexpectedly quickened, putting the central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad. Industrial production rose 14 percent from a year earlier, a strong showing but shy of the 14.6 percent rate that economists polled by Reuters had predicted and slower than June's 15.1 percent jump.
Annual inflation inched up to 6.5 percent, its highest mark since June 2008, when global oil prices were soaring toward a record high. Economists had expected a dip to 6.3 percent, after June's reading of 6.4 percent. But in line with some market estimates that inflation may have peaked, an official from China's top economic planner said prices should fall in coming quarters, and that there is no need for Beijing to further tighten policy.
"Prices would be within a controllable range in the second - half (of the year) and judging from the current situation, there is no need to adopt more severe measures," Zhou Wangjun was quoted as saying on the state radio website after the data release. Zhou, a deputy director at the National Development and Reform Commission, said inflation should ease from August, but warned that a third round of quantitative easing by the United States could fuel price pressure in global commodities.
"We still need to watch closely as to whether the United States would launch QE3 and what its impact would be on global commodity prices," he said. China has acknowledged that inflation will exceed its annual target of 4 percent this year. But with debt crises raging in the United States and Europe, the People's Bank of China (PBOC) is widely expected to hold interest rates steady.
"This is the type of data that should have prompted the PBOC to hike interest rates, but given the current turmoil in financial markets, we expect them to delay it," said Wei Yao, an economist with Societe Generale in Hong Kong. China's urban investment soared 25.4 percent in July, slightly below expectations and June's 25.6 percent gain. Retail sales followed a similar pattern, rising a solid 17.2 percent year-on-year but coming up short of forecasts for a 17.6 percent gain and below June's 17.7 percent rise.
"This shows that China's growth has not picked up and continues to slow, and because of weaker external demand it will continue to slow in the coming months," said Ken Peng, senior economist at BNP Paribas. Tuesday's data showed food inflation at 14.8 percent from a year earlier, up from 14.4 percent in June. Non-food price pressures actually eased to 2.9 percent from 3.0 percent a month earlier.
Pork prices, which were the primary culprit behind June's hot inflation figures, soared again in July despite a slight cooldown in the second-half of the month. They jumped about 57 percent in the year to July, lifting the consumer price index by a hefty 1.5 percentage points. Overall, the month-on-month rise in the consumer price index was 0.5 percent, ahead of forecasts for a 0.3 percent rise.
The producer price index was up 7.5 percent year-on-year, faster than the 7.3 percent increase that economists polled by Reuters had predicted and well ahead of June's 7.1 percent rise. That suggests there is still some inflation pressure building in the pipeline. But if demand drops from the United States and Europe, China's next policy move may be towards easing, not tightening.
Comments
Comments are closed.