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Crossover: What does June's CPI figure tell?

07-09-2012 13:52 BJT

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Fresh data released by the country’s official statistics agency shows China’s consumer price index, rose just 2.2 percent in June easing from the 3 percent rate seen in May. Full story >>

Let’s bring in Biz Asia’s Guan Xin to talk more about China’s latest CPI figures.

Q1. Guan Xin, both CPI and PPI came in below economist expectations - the expectations themselves were actually pretty dismal to begin with. So what does June’s CPI figure tell us about where China’s economy stands now and going forward?

A1: Yes, the inflation figure dropped so fast that it even raises concerns about deflationwith economists expecting July CPI to fall below 2 percent. August and September will be important months to monitor from an inflation perspective. If prices fall too fast, fuelling deflationary expectations China is likely to cut interest rates further. And the drop in PPI, the fourth staight month of producer price deflation, helps underpin expectations among economists that consumer inflation in China will ease further in months ahead. And falling PPI also underlines the risk that producer prices are easing not just because of base effects versus a year ago, but because final demand for China’s factory output -- particularly from foreign customers -- is declining as the global economy weakens.

Q2. China is due to unveil a host of economic data this week, including Q2 GDP given last week’s ominous rate cut. I’m assuming the figures may not look pretty.

A2: Well, the GDP figure is also expected to hit a low...the average forecast is that economy grew 7.6 percent in the second quarter year on year, that would mark the slowest quarter of expansion since the three months to March 2009, at the depths of the global financial crisis. That’s why we heard from Premier Wen Jiabao on Sunday that more aggressive efforts were needed to support growth. That’s a different wording compared with the "fine-tuning" adopted by officials since the autumn of last year. Now the most optimistic view is that China’s economy is likely to bottom out in the third quarter, after the current stimulus measures filter through, but the recovery is likely to be mild too. And we should also be prepared for an even worse scenario, as the there is still no end in sight of the world economic downshift.

 

Editor:Zhang Dan |Source: CNTV.CN

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