China's Consumer Prices Rise 1.9%, Slowest in a Year (Update4)
Feb. 22 (Bloomberg) -- China's consumer prices rose in January at their slowest pace in more than a year, easing pressure on the central bank to raise interest rates.
The consumer price index increased 1.9 percent from a year earlier after climbing 2.4 percent in December after improved harvests stemmed gains in food costs, the Beijing-based statistics bureau said on its Web site. That's the smallest gain since October 2003 and less than the median 2.3 percent increase forecast in a Bloomberg News survey of eight economists.
``Inflation pressures are easing,'' said Liang Hong, an economist at Goldman Sachs Group Inc. in Hong Kong. The central bank will probably leave its benchmark one-year lending rate at 5.58 percent until ``towards the end of this year,'' when a half- percentage-point increase is possible, she said.
People's Bank of China Governor Zhou Xiaochuan said he plans to ``scrutinize'' inflation data in deciding how to follow up on October's 0.27 percentage point increase in benchmark interest rates, which was the first in nine years. Holding off from raising rates may help sustain growth in an economy that's the world's biggest buyer of meat, mobile phones and motorbikes.
``The People's Bank of China should fulfill its duty as the central bank in promoting sustained, fast, steady and healthy economic growth,'' Zhou said in a statement posted yesterday on the bank's Web site. He also said the policy makers may need to ``consolidate and broaden the results of macroeconomic tightening measures.''
Cheaper Vegetables
Food costs, which account for about a third of China's consumer price index, rose 4 percent in January and vegetable costs fell 10.2 percent, today's report showed. The increase in food prices was the smallest since 2003, official figures show. Prices of consumer durables slid 2.6 percent and transportation equipment prices fell 3.7 percent.
A report yesterday showed producer prices rose 5.8 percent in January, the smallest increase in nine months. Producer-price inflation reached 8.4 percent in October, the highest rate since China started publishing figures in 1999.
The Hang Seng China Enterprises Index, which tracks 38 mainland companies that have so-called H shares, gained 0.1 percent to 4934.96 at the 12:30 p.m. close of Hong Kong's morning trading session. It rose as much as 0.6 percent earlier.
Rapid Growth
The yield on China's benchmark government bond maturing in 2011 climbed 2 basis point to 4.48 percent as of 12:44 p.m. in Shanghai. The bond yielded 4.86 percent when the government sold it to investors on Nov. 24. One basis point is 0.01 percentage points.
China raised rates in October partly to narrow the gap between inflation, which reached a seven-year high of 5.3 percent in the third quarter, and deposit rates. The benchmark deposit rate was raised to 2.25 percent on Oct. 29 and now exceeds the level of inflation.
Inflation has receded even as expansion in China's economy outpaced economists' forecasts. Economic growth unexpectedly accelerated to 9.5 percent in the fourth quarter, driven by bigger harvests and surging exports to the U.S., Europe and Japan.
Credit restrictions imposed by Premier Wen Jiabao in April have dampened inflationary pressures by reducing the amount of cash circulating through China's economy, said Liang. Tighter financing conditions also limited the scope for wage increases, she said.
Higher Wages
``If there's something the government deserves credit for, it's for introducing measures early in the cycle,'' said Liang. The central bank in September 2003 began raising the proportion of cash banks must set aside as reserves.
Still, inflation may accelerate as labor shortages force wages higher. Guangdong, China's biggest exporting province, faces a shortfall this year of 1 million laborers, the statistics bureau said Feb. 1. Factories seeking to expand will be forced to offer higher salaries, it said.
Producer price gains have outpaced increases in consumer prices in the past year, a trend that may ultimately stoke inflation, said Chris Leung, an economist at DBS Bank Ltd. in Hong Kong.
``Hidden inflationary pressures are still there -- they reside at the producer level,'' said Leung. ``If the supply situation at the producer level continues to be tight, eventually inflation will pass on to consumers.''
Rising Incomes
Per capita disposable incomes in urban areas, home to a third of the nation's 1.3 billion people, rose 7.7 percent in real terms to 9,422 yuan ($1,138) last year. Net incomes in rural areas, which were boosted by increased grain production and higher food prices, climbed 6.8 percent to 2,936 yuan per person. Incomes haven't risen faster since 1997.
Prices of water, electricity and fuel rose 10 percent in January while house rental prices increased 2.2 percent. From December, consumer prices rose 0.6 percent last month, today's report showed. The figures aren't seasonally adjusted.
The government last month forecast monthly gains in the consumer price index would average 4 percent this year, up from 3.9 percent in 2004. The central bank forecast an average inflation rate of 3.3 percent.
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