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A period of mild inflation may offer a greater opportunity for further stimulus, economists said after the government reported on Monday that the September consumer price index increased 1.9 percent year-on-year. The CPI, a key inflation gauge, grew 2 percent in August and hit a two-year low of 1.8 percent in July. The second half of this year has seen low inflation and conditions are ripe for economic recovery in the last quarter, supported by the easing of fiscal and monetary policies since the second quarter, economists said.
According to the National Bureau of Statistics, food prices increased 2.5 percent year-on-year in September, 0.9 of a percentage point slower than the August rate, as prices for pork and fresh vegetables fell markedly when supply expanded. The producer price index, an indicator of wholesale inflation, declined 3.6 percent year-on-year in September. It is the lowest since November 2009. In August it dropped 3.5 percent and July saw a fall of 2.9 percent, suggesting that demand for producer goods was still weak. But there are signs of manufacturing and market demand rebounding, driven by the moderate stimulus program since April, said Xu Hongcai, a senior economist with the China Center for International Economic Exchanges, a government think tank.
Zhang Zongping, a sales manager for a trading company in Shanghai, said that export demand increased since September thanks to orders for Christmas and New Year. The official GDP data will be released on Thursday. Many economists predict the three-month period to the end of September will see a seventh consecutive quarterly deceleration.Economists expect signs of a recovery later this year or in early 2013, but they also fear that global demand will remain weak.
Trade data released on Saturday showed imports revived slightly from the previous month’s contraction but grew by only 2.4 percent, suggesting a recovery has yet to take hold. GDP growth was 7.6 percent year-on-year in the second quarter, down from 8.1 percent in the first three months. Starting from the second quarter, the government has eased monetary policy through cutting both the benchmark interest rates and the reserve requirement ratio to increase market liquidity and encourage investments.
Analysts warned that China should be prepared for "imported inflation" caused by a new round of quantitative easing, known as QE3, in the United States. "QE3 will lift commodity prices. The price rises will be passed on to China because the country is a huge importer of commodities," said Zhuang Jian, a senior economist with Asia Development Bank.
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