Benign inflation adds to sense Chinese economy is recovering

The data follow trade figures released on Sunday that showed a 7.2 per cent jump in exports and a 7 per cent rise in imports for August.

Story highlights

  • Consumer prices rose 2.6 per cent from a year earlier, just a touch below July's 2.7 per cent pace
  • The data follow trade figures released on Sunday that showed a 7.2 per cent jump in exports
  • With economic growth weak, price pressures are expected to remain subdued in China for some time

The Chinese economy found its feet in August, with inflation remaining subdued as exports rose more than expected, giving a rosier outlook for the second half of the year.

Consumer prices rose 2.6 per cent from a year earlier, just a touch below July's 2.7 per cent pace, the statistics bureau said on Monday. Inflation is unlikely to pass the 3 per cent threshold in 2013, leaving it well within the government's comfort zone and beneath its official "upper limit" of 3.5 per cent.

The data follow trade figures released on Sunday that showed a 7.2 per cent jump in exports and a 7 per cent rise in imports for August, beating expectations and pointing to firmer third-quarter growth than had previously been expected.

Meanwhile, producer price inflation, which has been negative since March 2012, improved, giving some hope to Chinese manufacturers struggling with slumping margins and excess capacity. The producer price index, a measure of the prices of goods when they leave factories, declined 1.6 per cent from a year earlier in August, firming from July's 2.3 per cent fall.

Still, metals and steel prices remained depressed compared with a year ago, adding to the woes of industrial firms burdened with heavy debt loads.

With economic growth weak, price pressures are expected to remain subdued in China for some time. Beijing has long said it accepts the need for the Chinese economy to move to a more sustainable rate of growth, a stance reiterated by Premier Li Keqiang:

"We can no longer afford to continue with the old model of high consumption and high investment. Instead, we must take a holistic approach in pursuing steady growth, structural readjustment and further reform," Mr Li wrote in the Financial Times on Monday.

Nonetheless, the government blinked this summer, introducing targeted measures to arrest the growth slowdown, including temporary tax cuts for small businesses, investment in railways and low-income housing and streamlined customs procedures.

The economy in July responded with a mild rebound that appeared to rely heavily on construction and investment -- the opposite of Beijing's stated goal of rebalancing the economy more towards consumption and services.

"There has been an improvement in sentiment, due to the recent policy moves," said Xianfang Ren, a Beijing-based economist with IHS Global Insight.

The "mini-stimulus" fed through to a mild increase in consumer prices in August on a month-to-month basis. Consumer prices have been steadily climbing since May, driven in particular by pork, China's staple meat. The cyclical tightening in the hog market follows a glut last year, when novice pig breeders sustained severe losses. Fruit prices also rose.