China Notches Initial Win in Inflation Fight

China’s anti-inflation fight is showing early signs of success as consumer price inflation decelerated to 6.2% year-on-year in August, against a three-year high of 6.5% in July. The Producer Price Index likewise moderated, falling to 7.3% from 7.5% in the same period.

“Although the government will remain vigilant on inflation, there is evidence to suggest that inflation is near its peak,” says Alaistair Chan, an economist at Moody’s Analytics. He noted that food disinflation was a key contributor in the better numbers, rising 13.4% year-on-year compared with 14.8% in July.
But Chan also noted that non-food prices, a measure of core inflation, increased 3% year-on-year, up slightly from 2.9% in July. An easing in global commodity prices on the back of slowing growth in the US and Europe and in China itself may help further ease inflation.
Chinese officials took pains to reiterate that their eyes remain focused on inflation. The August 6.2% rate is still far above the 2011 target of 4%, which Premier Wen Jiabao has reportedly admitted is now difficult to achieve.
China has raised interest rates five times since October last year and the banks’ required reserve ratio nine times. Before the onset of renewed worries about a Greek sovereign debt default and a double-dip global recession, China was seen as likely to continue tightening.
Some analysts now say policymakers are more likely to keep tightening measures in check while they observe global conditions and await September inflation and other data.

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