Inflation in China hits 29-month low on slowing economy

July 09, 2012|By David Pierson

A vendor waits for customers at a Beijing fruit stall.

BEIJING -- Inflation in China grew at its slowest pace in nearly 2 1/2 years in June, likely paving the way for more monetary loosening as the world's second-largest economy tries to avert a sharp slowdown in growth.

Consumer prices edged up 2.2% from a year ago, slower than May's year-on-year increase of 3.0%, China's National Bureau of Statistics said Monday.

The falling prices should give China confidence to increase bank lending and stimulate an economy facing its weakest growth in three years. China's central bank lowered benchmark interest rates last week for the second time in less than a month.

"Inflation is falling fast and is likely to remain tamed for the rest of this year. This leaves sufficient room for policy easing and Beijing's top leaders confirmed their willingness to do so," said Qu Hongbin, an economist for HSBC.

Inflation was Beijing's chief economic concern a year ago as public discontent was rising over soaring food prices. Today, that challenge has reversed as consumer prices may be falling below what goods are worth -- better known as deflation. The condition can be highly damaging for corporate profits.

"Today's inflation data show that deflation could become a larger concern for China than inflation," said Ren Xiangfang, chief China economist for IHS Global Insight. "While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy."

On a tour of eastern China on Sunday, Premier Wen Jiabao called for more aggressive policy to stabilize the country's economy, saying it was facing "huge downward pressure."

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