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China's moderating inflation indicates economy might be cooling

May 10, 2012|By David Pierson

BEIJING – Inflation in China moderated last month in another sign that the world’s second-largest economy is cooling.

Consumer prices grew 3.4% from a year earlier, China’s National Bureau of Statistics said Friday. That's down from 3.6% year-over-year growth in March.

“We think the inflation outlook for this year is benign,” analysts at IHS Global Insight in Beijing told clients in a research note Friday.

The data release comes a day after China reported surprisingly weak trade numbers for April. Chinese exports grew by 4.9% from a year earlier, down from 8.9% growth in March, because of continued weakness in Europe. Imports grew by only 0.3% from a year earlier, highlighting China’s shrinking investment in real estate and public works.

The lackluster numbers suggest China’s economy could still see further decline, even though analysts had said growth had bottomed out in the first quarter, when the country’s gross domestic product grew by 8.1%, the slowest pace of expansion in three years.

The question now is whether policymakers feel the need to ease lending even more to stimulate the economy.

“At the moment, it is too early to tell whether the government will need to ease policy further,” UBS economist Wang Tao wrote in a recent research note. “Exports, industrial production and construction in the next couple of months should give us more clarity as to whether the current modest easing is sufficient.”

In response to the easing threat of inflation, China said Wednesday it would drop retail prices for gasoline and diesel for the first time in half a year because of the reduction in global oil prices.

Despite the downward trajectory of consumer prices, China’s central bank warned Thursday that inflation remains a risk because of rising labor costs and volatile pricing for commodities

Still, the People’s Bank of China said it would keep a “prudent” monetary policy in the months ahead, affirming the belief no major stimulus is in store.

RELATED:

China's inflation rate edges up in March.

China's economic growth brakes to slowest pace in 3 years.

World Bank to China: 'Your economic model is unsustainable.'


 

 

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