China Inflation Rises; PPI Falls Further

(RTTNews) - China's consumer price inflation increased in August as abnormal weather pushed up vegetable prices, while producer prices declined more sharply on lower commodity prices.

Consumer price inflation rose to a six-month high of 0.6 percent in August from 0.5 percent in July, the National Bureau of Statistics reported Monday. But the rate fell short of the expected 0.7 percent rise.

On a monthly basis, consumer prices gained 0.4 percent in August. Prices were expected to climb 0.5 percent, the same rate as seen in July.

Food prices advanced 2.8 percent annually compared to flat growth in July. At the same time, non-food prices gained 0.2 percent.

Core inflation that excludes food and fuel prices slowed to 0.3 percent from 0.4 percent in July.

Another data from the NBS showed that producer prices decreased 1.8 percent annually, worse than July's 0.8 percent decline. Economists had forecast a 1.4 percent annual drop.

The decline in producer prices largely reflects lower fuel and metal prices. Capital Economics' economist Gabriel Ng said increased fiscal spending is likely to boost domestic demand somewhat in the near-term.

However, the economist noted that the government policy is still too skewed toward investment. So increased fiscal spending may ultimately exacerbate the overcapacity problem.

This is one of the reasons why inflation is expected to remain very low over the medium-term, the economist said.

Last week, Zou Lan, head of the People's Bank of China's monetary policy department, said the bank has room to cut the reserve requirement ratio. Zou said there are certain constraints on cutting deposit and lending rates further.