China: inflation slows to 1.8% in July

Chinese inflation hit a two-and-a-half-year low in July, official data showed Thursday, giving the government further policy leeway to boost weakening growth. The country's consumer price index (CPI) rose 1.8 percent year-on-year last month, the National Bureau of Statistics said, the fourth straight month of year-on-year easing and the lowest level since January 2010. The slowdown potentially gives authorities more ammunition to light a fire under the world's second-largest economy, which grew 7.6 percent in the second quarter for its worst performance since the height of the global economic crisis in 2008-2009. Authorities this year have taken measures including the rare step of slashing interest rates twice in quick succession while also lowering requirements for how much money banks must keep in reserve. Chinese leaders, including Premier Wen Jiabao, have expressed concern over the weakness in the economy and have hinted that the government may need to take further action to bolster growth. Sun Junwei, China economist at HSBC in Beijing, said the figure was in line with expectations and confirmed that inflation overall is trending downward. "In general, China's inflation will likely be moderate and controllable in the future, which offers room for China to further loosen its (monetary) policy," she said. Sun added that if other economic data due out later Thursday comes in worse than expected there could be a further cut in interest rates or bank reserve requirement ratios in August. China is scheduled to announce July figures in industrial production, fixed asset investment and retail sales later Thursday. Helping suppress the overall consumer price index was a decline of 0.9 percent in prices for transportation and telecommunications, according to the data. Inflation for the first seven months of 2012, meanwhile, was 3.1 percent, the bureau said. "Inflation continues to peel off rapidly, highlighting an output gap that the government is trying to plug with rising state investment," economists at IHS Global Insight said in a report after the release of the July data. Producer price inflation (PPI), a leading indicator, declined 2.9 percent in July from the same month last year for the fifth straight month of contraction. Producer prices "continue to highlight the severe deflationary pressure rippling across the country", IHS Global Insight said, noting that "deflation, not inflation, is the greatest short-term threat to the Chinese economy".