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China's easing inflation fuels policy adjustment predictions, full-on moves unlikely

(Xinhua)

17:02, January 12, 2012

BEIJING, Jan. 12 (Xinhua) -- A December decrease in China's inflation has fueled widespread guesses about policy loosening to spur the slowing economy, although analysts believe that significant easing is unlikely, as inflationary pressures remain.

The full-year inflation figure for 2011 was still up 5.4 percent from the previous year and well above the government's full-year control target of 4 percent, the National Bureau of Statistics (NBS) said in a statement on its website.

"Although the current inflation figure has eased, the country's monetary polices will not shift toward loosening, but will remain stable," said Zuo Xiaolei, chief economist at Galaxy Securities.

<b>EASING PRESSURES</b>

The growth of the country's consumer price index (CPI), a main gauge of inflation, eased to a 15-month low of 4.1 percent in December amid accumulative government tightening measures, the NBS said Thursday.

The country's inflation rate hit a 37-month high of 6.5 percent in July before dropping to 6.2 percent in August, 6.1 percent in September, 5.5 percent in October and 4.2 percent in November, according to the NBS data.

The NBS attributed the decline in CPI growth to falling non-food prices. Non-food prices rose 1.9 percent from a year earlier, but dropped 0.1 percent from November to December.

In the non-food category, the cost of living dipped 0.2 percent in December, while prices for entertainment, educational and cultural items and services dropped 0.3 percent.

Meanwhile, food prices, which account for nearly one-third of the basket of goods used to calculate the CPI, went up 9.1 percent year-on-year and 1.2 percent month-on-month in December.

The NBS said a carryover effect from last year phased out in December, meaning that this month's year-on-year increase in CPI growth was created entirely by new price rises.

The increases in food prices were mainly caused by the upcoming Spring Festival holiday, as well as weather- and transportation-related factors, Wang said.

The Producer Price Index, a major measure of inflation at the wholesale level, also suggested subdued inflationary pressures for the country. It rose 1.7 percent year-on-year in December, weakening from 2.7 percent a month earlier.

Although divided on whether consumer prices will retreat rapidly or remain at high levels, analysts agreed that the CPI growth has not yet reached a safe range.

"The first two months of the year will see a further retreat in the growth of consumer prices, but the volatility of international commodity prices, caused by geopolitical factors, will form new imported inflationary pressures," Wang said.

Meanwhile, domestic factors, including rising agricultural production, resources, land and labor costs, will push up consumer prices in the mid- to long-term, said Lian Ping, chief economist at the Bank of Communications.

Lian said the CPI will rise by 2.7 percent to 3.3 percent year-on-year in 2012, while Liu Ligang, director of the economic research department of ANZ Greater China, expects the full-year CPI to hit 4 percent.

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