China Inflation Ticks Lower, Policy on Pause

China’s rate of inflation decreased in September, although “not drastic enough to reduce inflationary expectations,”  and furthermore, food prices remained high. From 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.

The dip in inflation in September was right in line with a poll of economists’ forecasts and lower than August’s reading of 6.3 percent.

Food price pressures remained strong, however, rising 13.4 percent from a year earlier, unchanged from the pace in August’s data. Non-food inflation eased to 2.9 percent from 3.0 percent in August, the data showed.

China’s producer price index in September came in below market expectations with a 6.5 percent rise from a year ago, compared with August’s 7.3 percent.

Despite decreasing inflation, there have been some other troubling economic indicators, such as China’s export growth falling to its weakest in seven months. From SF Gate:

China’s export growth cooled to the weakest in seven months and officials said that trade faces “severe challenges” as the yuan strengthens and confidence slides in developed nations.

Exports climbed a less-than-forecast 17.1 percent in September from a year earlier, customs bureau data showed in Beijing today. The trade surplus fell to $14.51 billion from $17.76 billion in August. Imports rose 20.9 percent, also less than forecast.

The risk of a slump in trade may encourage Chinese officials to refrain from further interest-rate increases and add to support for companies after the State Council yesterday announced tax breaks for small businesses. The world is relying on China, the biggest contributor to global growth, to sustain an expansion that was 9.6 percent in the first half of the year.

“The leading indicators from the developed economies indicate that worse will follow” for exports, said Yao Wei, a Hong Kong-based economist at Societe Generale AG.

China Premier Wen Jiabao said China will keep the yuan basically stable to avoid hurting exporters too much, sending a signal that Beijing is unlikely to allow any dramatic yuan appreciation for now as the country’s exporters have started feeling the pressure from a slowing global economy.

Mr. Wen’s remarks came after trade data showed both exports and imports weakened more than expected but the yuan had undergone a bout of relatively fast appreciation over the past few weeks, partly due to political pressure from Washington. Tuesday, the U.S. Senate voted to pass a bill to penalize China for its alleged devaluation of the yuan.

China will keep its export policy generally stable, maintain its export-tax-rebate policy and increase its credit support for exporters, Mr. Wen was quoted as saying, according to the state radio on Saturday.

The report also said that Mr. Wen said the global financial crisis isn’t over, and that it is more severe than those in the past.

China will try to balance its international payments by expanding imports while stabilizing exports, the state radio quoted Mr. Wen as saying.

In related news, the U.S. Treasury Department will delay a ruling on whether or not China is manipulating its currency, postponing it until later this year. From Reuters:

The Treasury Department said on Friday it would delay until later this year a ruling on whether China is manipulating its currency as Democratic Party lawmakers tried to overcome Republican opposition to a bill that would punish Beijing for its currency policies.

The decision to delay the sixth semiannual report to Congress under the Obama administration, which was due on Saturday, came days after the Senate approved legislation that aims to pressure Beijing to let its yuan rise in value faster.

The delay “will give us a chance to assess progress following several international meetings,” the Treasury Department said in a statement.

Ministers and leaders of the Group of Twenty major global economies and the Asia Pacific Economic Cooperation forum, bodies in which the United States and China are key players, are scheduled to meet this month and in November.


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