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TIANJIN/CHINA 13SEP10 - Wen Jiabao, Premier of...

TIANJIN/CHINA 13SEP10 – Wen Jiabao, Premier of the People’s Republic of China and Klaus Schwab, Founder and Executive Chairman, World Economic Forum, speak during the Opening Plenary of the Annual Meeting of the New Champions in Tianjin, China, September 13, 2010. Copyright World Economic Forum ( http://www.weforum.org )/Adam Dean (Photo credit: Wikipedia)

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China’s consumer inflation unexpectedly decelerated to a 33-month low on slowing food-price gains while producer-price deflation eased in a sign industrial demand is rebounding.

The consumer-price index rose 1.7 percent in October from a year earlier, the National Bureau of Statistics said today in Beijing. That was below the median estimate of analysts surveyed by Bloomberg News and compared with 1.9 percent in September. Producer prices declined 2.8 percent from a year earlier after a 3.6 percent drop in September.

Today’s report may offer some comfort to China’s leaders meeting this week for a once-a-decade power transition that stimulus implemented earlier this year has led to a recovery in domestic demand without triggering price gains. The pause in monetary easing since July may persist as industrial-output growth picks up and the government assesses the impact on jobs from a seven-quarter economic slowdown.

“The impact of policy easing has been kicking in gradually since the summer and with green shoots of recovery springing up, policy makers will likely bias more towards “wait and see” to avoid criticism of intervening prematurely and excessively,” Helen Qiao, chief China economist at Morgan Stanley in Hong Kong, said before the report. “Below-par growth doesn’t seem to have caused widespread layoffs so far and memories of elevated inflation last year are fresh enough to hold policy makers back from further easing.”

Recovery Signs

While the increase in China’s gross domestic product slowed to 7.4 percent in the July-September period from a year earlier, the weakest in three years, gauges of manufacturing and retail sales have pointed to a recovery. Expansion will probably pick up to 7.7 percent this quarter and to 7.9 percent in the three months through March 2013, based on the median estimate of analysts surveyed Oct. 18-22.

“Recent data from China suggest growth there has stabilized,” the Reserve Bank of Australia said in a Nov. 6 statement after unexpectedly leaving the benchmark interest rate unchanged.
The Shanghai Composite Index (SHCOMP) of stocks has dropped 5.8 percent this year on concern the slowdown in growth will hurt company earnings. The gauge was down 0.1 percent at 9:46 a.m. local time today after declining 2.2 percent this week through yesterday.

Yuan Trading

The yuan was little changed against the dollar in Shanghai today, after touching the top end of its permitted trading range for a fourth straight day yesterday on optimism the nation’s new leaders will take more measures to stimulate growth.
The statistics bureau will release other monthly data at 1:30 p.m. today.

Industrial output probably rose 9.4 percent in October from a year earlier, a four-month high, based on an economist survey. Retail sales growth may have accelerated for a third month to a 14.4 percent pace, while fixed-asset investment excluding rural areas probably increased 20.6 percent in the first 10 months of 2012 from a year earlier, up from a 20.5 percent pace in the January-September period.

China’s consumer-price gains have slowed from a three-year high of 6.5 percent in July last year as food costs eased. The median forecast in a Bloomberg News survey was for a rate of 1.9 percent in October. Food prices rose 1.8 percent last month from a year earlier, compared with a 2.5 percent gain in September, according to the statistics bureau.

Inflation is “currently stable,” the central bank said in its quarterly monetary policy report last week. At the same time, it highlighted risks from increases in costs of imported goods and said prices are sensitive to expansion in demand and stimulus policies.

Inflation Target

Premier Wen Jiabao pledged in March to hold consumer-price increases to about 4 percent this year. The inflation rate has been below that target for nine months.

The decline in the producer-price index compared with the median estimate for a 2.7 percent drop in a Bloomberg survey of economists. That marked the first improvement since prices started falling on a year-earlier basis in March as domestic demand slowed, with the government’s campaign to rein in inflation and property prices and excessive inventories plaguing industries including steel and cement.

Shrinking stockpiles of some products are setting the stage for replenishment to support an economic rebound and price gains. Stocks of manufacturers’ finished goods contracted in October for a fourth month at close to the fastest pace this year, according to a government purchasing managers’ survey. One measure of coal inventories shows a 40 percent drop since this year’s peak in June and a gauge of steel stockpiles is the lowest since 2009.

‘Reduced Drag’

“A reduced drag from industry destocking and signs of selective raw materials restocking suggests industrial activity and growth momentum are likely to improve further” this quarter, Barclays Plc economists led by Chang Jian said in a Nov. 2 research note. “This is likely to be moderate, rather than sharp, in our view. We think the government will maintain the current level of monetary and fiscal support to ensure the growth recovery is sustained.”

Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, on Oct. 30 reported its fourth consecutive quarterly loss as overcapacity and slowing demand weighed on prices.

Baoshan Iron & Steel Co. (600019), China’s biggest publicly traded steelmaker, last month reported a 4.9 percent drop in third-quarter profit.

–Scott Lanman, Nerys Avery. With assistance from Zheng Lifei in Beijing and Ailing Tan in Singapore. Editors: Scott Lanman, Nerys Avery

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China Insurance Building (中国保险大厦), Shanghai

China Insurance Building (中国保险大厦), Shanghai (Photo credit: thewamphyri)