China’s inflation slowed by the most in almost three years, giving officials more room to support growth as industrial production and the property market cool and Europe’s crisis threatens exports.
Consumer prices rose 5.5 per cent in October from a year earlier, the statistics bureau said on its website today. The 0.6 percentage point decline from September’s rate was the biggest since February 2009. Industrial output growth slowed to 13.2 per cent.
Most economists expect Premier Wen Jiabao’s government to loosen fiscal or monetary policy without cutting interest rates as inflation stays above a full-year target of 4 percent, a Bloomberg News survey showed this week. HSBC Holdings Plc said today that “targeted easing” may include measures to support smaller businesses and the construction of public housing and infrastructure.
“The combination of easing inflationary pressures, a protracted euro debt crisis and a potential property market slump has set the scene for an imminent policy easing,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd. “The time is right” for a cut in lenders’ reserve requirements, he said.
Industrial output growth was the least in a year and compared with a 13.8 per cent gain in September, Bloomberg data show. Economists’ median estimate was for a 13.4 per cent gain.
Housing transactions fell 25 per cent from September, today’s data showed, with Credit Suisse Group AG analyst Jinsong Du saying that “sluggish” volumes are a risk for developers.
PRODUCER PRICES MODERATE
China’s inflation may moderate further as raw-material costs decline, reflecting headwinds to the global recovery from faltering US growth and the prospect of a recession in Europe. Producer prices rose 5 per cent, less than any of 24 analyst forecast and the smallest increase in a year, today’s data showed.
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Li Daokui, an adviser to the People’s Bank of China, said today he estimates inflation next year will average 2.8 per cent.
The benchmark Shanghai Composite Index closed 0.8 per cent higher at 2,524.92, the first increase in three days. China’s swap market is starting to indicate chances for an interest-rate reduction in the coming year. The cost of fixing borrowing costs for a year fell below the 3.5 per cent benchmark savings rate last month and dropped to 3.08 per cent today.
Growth in fixed-asset investment excluding rural households in the first 10 months was 24.9 per cent, unchanged from the first nine months and in line with the median estimate in a Bloomberg survey. Retail sales rose 17.2 per cent from a year earlier, after a 17.7 per cent gain the previous month.
INTEREST-RATE CUT
“These strong readings mean it’s not necessary for Beijing to change its overall policy stance and there is no need to cut policy rates or reserve requirements,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp. “Markets should not expect too much on changes of policy stance.”
Five of 13 forecasters in the Bloomberg News survey predicted no change in the one-year deposit rate before the end of 2012, five predicted an increase and three saw a cut.
Food costs rose 11.9 per cent last month from a year earlier after a 13.4 per cent increase in September, the statistics bureau said. Pork climbed 39 per cent after a 44 per cent jump.
Food accounted for 3.62 percentage points of the overall increase in consumer prices, the bureau said. Non-food inflation eased for a second month to 2.7 per cent.
PORK SUPPLIES
The government raised subsidies for farmers to increase food supplies, reduced transport charges to limit costs and told companies to refrain from putting up prices. The National Development and Reform Commission told liquor makers including Kweichow Moutai Co. and Wuliangye Yibin Co in September to hold off planned price increases of as much as 30 per cent.
Falling costs for commodities such as oil and an improved supply of pork are helping to ease price pressures even as the government is set to miss its full-year inflation target.
Gasoline and diesel prices were cut by 3.5 per cent and 3.9 per cent respectively on Oct. 9 for the first time this year after crude oil costs dropped. An index of manufacturers’ input prices fell the most in 17 months in October, China’s logistics federation and the statistics bureau said on Nov. 1.
The People’s Bank of China raised interest rates five times from October 2010 to July and boosted banks’ reserve requirements nine times to a record 21.5 percent for the biggest lenders. Small businesses complain of a credit squeeze, especially in the eastern city of Wenzhou.
‘REASONABLE’ HOUSING PRICES
Wen said last month economic policies will be “fine tuned” to protect the economy against global turmoil. Policy makers have already announced tax cuts for companies, trial reform of the value-added tax system and increased credit for smaller companies.
Even so, the government won’t “waver” in its regulation of the real-estate industry and aims to “lead housing prices back to a reasonable level,” Wen told students during a visit to Russia, the Xinhua news agency reported today.
The cost of housing has started to decline after a two-year government campaign to curb speculation and limit purchases. Poly Real Estate Group Co., China’s second-largest developer by market value, said Nov. 7 its contracted sales fell 39 percent from a year earlier last month. Barclays Capital estimates home prices may decrease by 10 percent to 30 percent in the next year.
New residential housing starts dropped 1.3 percent in October from a year earlier, the first decline this year, today’s data showed, according to Zhang Zhiwei, a Hong Kong- based economist with Nomura International (Hong Kong) Ltd.
BOOSTING SENTIMENT
“Downside risks from faltering exports and rising housing inventories are building,” said Li Wei, a Shanghai-based economist at Standard Chartered Bank. “A broader scale easing is likely to start soon with faster new loan growth and higher budgetary spending on existing government-led investment.”
If the slowdown in economic growth accelerates in November and December, banks’ reserve requirements may be cut before the Chinese new year in mid January to boost market sentiment, Li said. A reduction in interest rates is unlikely until inflation falls below 3.5 percent, Li said.