China says inflation at 6.3 percent

August 12, 2008
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, BEIJING, August 12 – China\’s inflation rate eased for the third consecutive month in July, giving the government more leeway to pursue policies to boost growth, economists said Tuesday.

The consumer price index was up 6.3 percent in July, easing from June\’s 7.1 percent and May\’s 7.7 percent, the National Bureau of Statistics said in its monthly release.

"I think in the next few months we will further see a slowdown in inflation," Deutsche Bank economist Jun Ma told Dow Jones Newswires.

He said weaker inflation will likely result in a relaxation of credit conditions later this year.

The consumer price data was released a day after the government said producer prices had risen 10.0 percent in July, the fastest rate in 12 years.

"Producer price figures showed costs pressures remained quite big while consumer price figures showed price rises on the consumption side have eased," said Tao Dong, a Hong Kong-based economist with Credit Suisse.

"The result is that producers\’ margin is probably squeezed," he said.

Rising fuel prices played a role in last month\’s inflation, with petrol prices up 22.2 percent from a year earlier, according to the bureau.

Beijing in June lifted petrol and diesel prices by up to 18 percent as the government moved to close the gap between state-set domestic prices and the soaring world oil market. The government also raised electricity costs.

"What is especially encouraging is that the price hike on oil products prices in June did not change the declining trend of the inflation," said Credit Suisse\’s Tao.

While food prices have been the most important factor in bringing about inflation in recent months, non-food items are gradually having a bigger impact.

Non-food prices rose 2.1 percent in July, up from 1.9 percent in June and 1.7 percent in May, according to the bureau.

Inflation in the cities in July was 6.1 percent, while in the countryside it stood at 6.8 percent, according to the bureau.

Prices are rising faster in the countryside partly as a result of recent policy measures aimed at lifting the economy in China\’s vast rural interior.

In the first seven months of the year, China\’s consumer price index was up 7.7 percent from the same period in 2007, the bureau said.

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