Chinese inflation continues to weaken

BEIJING -- China's consumer prices rose at the slowest pace in 29 months in June, along with the lowest industrial inflation in 31 months, strengthening expectations that the world's second largest economy may suffer the most serious impact after the 2008 financial crisis.

June consumer prices increased by 2.2 percent from a year earlier, the slowest growth since February 2010. The figure was 0.8 percentage points lower than in May, the National Bureau of Statistics said on July 9.

During the first six months of the year, the country's CPI increased 3.3 percent compared with the same period last year, lower than the full-year target of 4 percent set by the central government in March.

"Consumer inflation may drop to below 2 percent in July, which can provide larger space for the authorities to periodically and partially readjust macroeconomic policies," said Ba Shusong, an economist with the Development Research Center of the State Council.

As market demand is shrinking because of the deepening eurozone crisis and the weakening global economy, China's GDP growth may decrease to 7.5 percent - the slowest pace since the second quarter of 2009, after the 8.1 percent year-on-year increase in the first three months, according to economists.

Last month, food prices, which account for about 30 percent of the CPI calculation basket, climbed 3.8 percent from a year earlier, compared with 6.4 percent in May. Non-food prices increased by 1.4 percent.

Sharply easing inflation pressure was one of the reasons for the central bank to consecutively cut benchmark interest rates twice since June, said Ba.

The People's Bank of China lowered interest rates last week by 25 basis points to boost growth, the second time in a month. It has also cut commercial banks' required reserve ratios by 150 basis points since November 2011, setting free about 1.2 trillion yuan ($190 billion) for credit.

Also, the producer price index fell deeper under zero for the fourth straight month to minus 2.1 percent, indicating industrial deflation, which indicated that the demand for companies' output both overseas and domestically is weakening amid the gloomy global economy.

chenjia1@chinadaily.com.cn