Economy

Inflation highest in nearly two years

By Wang Xiaotian and Hu Yuanyuan (China Daily)
Updated: 2010-09-13 10:03

Customers shop for vegetables on Saturday at a supermarket in Shenyang, Liaoning province. China's consumer price index (CPI) rose 3.5 percent in August from a year earlier to a 22-month high. Photo by Sheng Li / Reuters

BEIJING - Despite a recent increases in the consumer price index (CPI), China's economy maintained stable growth in August while showing concerted growth in industrial output, investment and consumption, analysts said.

CPI, the major gauge of inflation, rose by a 22-month high of 3.5 percent in August year-on-year, 0.2 percentage points higher than the rate in July, said the National Bureau of Statistics (NBS) on Saturday.

It grew by 0.6 percent in August on a month-on-month basis, 0.2 percentage points higher than July, said the bureau.

Justin Yifu Lin, chief economist of the World Bank, said at a forum in Beijing on Sunday that the Chinese economy is moving in the right direction.

He estimated China's economic growth could reach 9.5 percent this year, but it may slow to 8 percent next year.

Sheng Laiyun, spokesman of the NBS, said the CPI increase was mainly attributable to a surge in food prices, which climbed 7.5 percent year-on-year in August and which account for about one-third of the index's weighting.

"Price increases of agricultural products contributed 70 percent of the acceleration if we rule out the influence of the lower basis in 2009," he said.

Sheng said factors leading to the decrease of the CPI in the coming months may still overwhelm further increases, because grain storage will be abundant and the supply of industrial products always exceeds public demand. "If the government can manage inflation expectations in a proper manner, the formerly-set target of maintaining inflation below 3 percent through the whole year is very likely achievable."

The producer price index, a major measure of inflation at the wholesale level, rose by 4.3 percent in August from a year earlier, declining from July's 4.8-percent growth, according to the NBS.

Taking investment, consumption and industrial output into consideration, China's economy has seen very stable development, said Zhu Baoliang, economist with the State Information Center.

China moves up global ladder Related readings:  August macro economy statistics  China's August CPI rises 3.5%  China's PPI up 4.3% in August

The growth of China's industrial value-added output accelerated to 13.9 percent year-on-year in August from July's 13.4 percent. The country's retail sales of consumer goods in August was up 18.4 percent year-on-year, 0.5 percentage points higher than July. And fixed-asset investment in the first eight months rose 24.8 percent, 0.1 percentage points lower than the first seven months.

"The declining trend of investment of the previous months has basically stopped, and consumption and industrial output showed a noticeable rebound, demonstrating alleviation of the economic slowdown," said Lu Zhengwei, chief economist of the Industrial Bank, adding that the data was better than expected.

Dong Xian'an, chief economist of Industrial Securities, said the data confirmed that the economy is still in the process of recovery. He predicted industrial output would continue to expand after experiencing a bottom in July, and the CPI would start to decline in the coming months, calling for no need to further tighten monetary liquidity.

Still, some analysts held different ideas on the August data. Shen Jianguang, chief economist with Mizuho Securities China, said despite the figures looking better than market expectations, signs of economic growth might just indicate a soft landing.