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CPI hits 30-month low amid easing calls

By Wei Tian and Ding Qingfen (China Daily)

08:14, August 10, 2012

A employee packs shelves in the supermarket.(Photo/Xinhua)

Rise in fuel prices announced as growth measures loom on horizon

Policy fine-tuning should be cautiously rolled out to prevent a rebound in prices, experts said, after inflation hit a 30-month low in July and stoked speculation of aggressive easing.

Meanwhile, the National Development and Reform Commission announced on Thursday that the retail price of gasoline would rise by 390 yuan ($62), and diesel by 370 yuan, a metric ton from Friday.

The consumer price index, a major gauge of inflation, rose 1.8 percent year-on-year last month, the slowest pace since February 2010, the National Bureau of Statistics said on Thursday.

The rate was 0.4 percentage point lower than in June and marked the fourth consecutive monthly fall.

"The falling CPI increases pressure on the government to further loosen monetary policy to restore growth," said Jin Linbo, vice-president of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences.

"But this will not be an easy job, as further easing, if not appropriately applied, will lead to a bubble. Authorities have to be very cautious about each step they take," Jin said.

Chen Daofu, policy research chief at the Financial Research Institute at the State Council's Development Research Center, said the government should not rush into another interest rate cut when inflation concerns remain high among consumers.

"A better choice would be to lessen administrative controls, such as further widening the room for floating interest rates."

The People's Bank of China, the central bank, lowered interest rates twice in the past two months to bolster the world's second-largest economy, which reported the slowest expansion in three years in the second quarter at 7.6 percent.

However, a recent report by the central bank said the marginal effect of policy relaxation is declining and it could lead to a rebound in inflation.

"Bank reserve cuts and open market operations will be the main tools adopted in the near future," Chen said.

Liu Ligang, head of China economics studies at the Australia and New Zealand Banking Group, estimated that bank reserve requirements will be cut this month, and two more cuts are likely this year.

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