China Inflation Rate Slows To 1.9% In September

  on October 15 2012 12:41 AM
Chinese Yuan
China's yuan. Reuters

The rate of inflation in China slowed down in September from the previous month, showing signs of a gradual decline in price pressure to make room for monetary easing.

Data from the National Bureau of Statistics released Monday show that the consumer price index of China rose 1.9 percent in September from a year earlier, down from 2 percent in August. The diminishing inflation should be good news, because it can help the government invigorate growth without much concern about rising prices.

China's gross domestic product growth slowed down to 7.6 percent in the second quarter, down from 8.1 percent in the first quarter, due to soft global demand and reduced real estate investment in the world's second largest economy. As a result, the government lowered its economic growth target in 2012 to 7.5 percent. In 2011 and 2010, the economy grew at the rate of 9.2 percent and 10.4 percent, respectively.

Earlier in the year, World Bank reported that China's export-and-investment-driven economic model, though successful for decades, was no longer sustainable and reforms were needed to prevent a sudden slump in growth. World Bank said that the country's economic growth would slow down to 5 to 6 percent annually by 2030 and a major overhaul would be needed to sustain even that level.

The data on inflation comes after it was reported earlier this month that China's manufacturing activity in September continued to remain in the phase of contraction. The data released Monday by the China Federation of Logistics & Purchasing showed that the manufacturing PMI rose to 49.8 in September, up from 49.2 in August. The continued shrinking of the manufacturing activity would increase fears of the likelihood of a sharp retardation in the economy.

The decrease in inflation has raised hopes that China will further cut the cash reserve ratio. Inflation may no longer be the main concern of policymakers and the government may have more space to loosen monetary policies and make supporting economic growth a priority. Instead of fighting inflation, the most urgent priority for China appears to be the pro-growth policy stance against the current uncertain global situation.

Join the Discussion