China's August inflation falls to 4.9%

(Xinhua)
Updated: 2008-09-10 10:23

China's consumer price index (CPI), a measure of inflation, was up 4.9 percent in August, the National Bureau of Statistics announced on Wednesday.

The figure, compared with 6.3 percent in July, 7.1 percent in June and 7.7 percent in May, was lower than most forecasts.

"The continuous decline of the CPI is a positive sign as it shows that the government's measures to ease inflationary pressures were effective," said Yao Jingyuan, chief economist with the bureau, who attributed the decline to falling food prices.

Food prices, which account for more than a third of the CPI calculation, rose 10.3 percent in August, 4.1 percentage points lower than July.

The price of meat increased 8.0 percent, down by 8 percentage points over July, while that of pork rose 1.0 percent. Cooking oil went up 22.7 percent, vegetables down 0.5 percent, aquatic products up 16.4 percent and grains up 8.0 percent.

In the first eight months of this year, the inflation indicator rose 7.3 percent from the same period last year: 7.0 percent for urban areas and 8.0 percent for the countryside.

Economist Wang Xiaoguang said the turning point for a wave of CPI rises had come, as the economic growth gradually slowed down and dampened demand.

"The overall slowdown of Chinese economy has become a trend, more than a sign," Wang said.

He attributed the trend to the domestic tightening macroeconomic measures and the impact of global economic slowdown.

In response to the situation, China has relaxed its macroeconomic policies and would continue to do so as the inflation pressure reduced, he said.

Talking about the impact of producer price index (PPI) growth, which remained above 10 percent for recent months, Wang believed the CPI figure would be unaffected. The downturn trend of CPI has remained unchanged despite the high-flying PPI for months, which means the price was decided more by demand than cost, he said.

"The CPI downturn might reverse in the future, but the possibility is slim," Wang said.

As the market demand continues to slacken, the PPI growth is also likely to drop to below 10 percent in September or October, said Wang.

Asian Development Bank senior economist Zhuang Jian urged caution for existing inflation pressure because the transmission mechanism between PPI and CPI is still unclear.

Though the two major factors behind previous CPI growth -- market demand and imported inflation from international market -- become weaker, the increasing cost of raw materials would continue to add pressure to higher prices, said Zhuang.

Controlling inflation remains a top priority for the Chinese government, but some analysts argued that downward inflationary pressure in CPI and producer prices would ease policymakers' concern over inflation and make it more likely for the authorities to relax tightened credit to maintain fast economic growth, the other prime priority for the central government.

The lower-than-expected inflationary trend also leaves bigger maneuver room for the government to liberalize prices of processed oil and electricity, though Wang suggested that the government should wait till the situation stabilizes before it carries out price reform of resource products. Energy prices, among a dozen of basic products, are under government control.

The Government has said it had been waiting for an opportune time to introduce resources pricing mechanism reform so that market will have a bigger role in deciding prices and balancing supplies and demand.

China's oil refinery and most coal-fired power-generating plants are operating at losses due to government controls on processed oil and electricity while the prices of crude oil and coal are liberalized.