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Analysts: August CPI growth may be the year's lowest

By Ding Qi (chinadaily.com.cn)
Updated: 2008-09-01 17:20

The country’s consumer prices are expected to fall in August thanks to declining food prices and a higher last-year basis, the China Business News quoted financial experts as saying on Monday.

Growth of China’s consumer price index (CPI), a main gauge of inflation, stood at 6.3 percent in July after reaching a 12-year-high of 8.7 in February. If the indicator continues ebbing in August, it will achieve a four-month decline and may become the year’s lowest, analysts said.

Lu Zhengwei, chief analyst from the Fujian-based Industrial Bank, predicted that the inflationary index will fall between 4.9 percent and 5.0 percent in August. He explained by quoting the latest statistics from the commerce ministry, which said August food prices dipped 0.4 percent from July, while non-food prices remained stable. In addition, a higher CPI of August, 2007 also took some inflationary edge off this year, he said.

China’s CPI grew 6.5 percent year-on-year in August, 2007, the second highest monthly rise of the year, affected by surging food prices.

Lu’s conclusion is echoed by Jiang Chao, a macro-economy analyst with Guotai Jun’an Securities. According to Jiang, the falling food prices, which account for more than a third of the CPI calculation, are expected to drag August CPI down by 1.1 percentage points from July to around 5 percent.

However, Jiang also anticipated a rebound of inflation in September and October this year due to price-hike pressures from oil and electricity. If that happens, August may see the lowest CPI growth this year, he added.

Compared with inflation, the possible economic slowdown of the country is drawing more attention so far, Jiang noted.

To address both issues, Lu said the financial authority is expected to impose marginal adjustment on its monetary policy this year. The reserve requirement ratio of banks, which lies at a historic high of 17.5 percent, is not likely to rise further at the moment. Moreover, a ratio cut is expected at the year-end, he said.

As for the next year, the reserve ratio may go down further and banks’ credit control is expected to fade to boost the economy, Lu said.