Economy stabilizing

The July price data released on Friday have reinforced the possibility that the economy is improving and the control target for consumer prices will be met this year.

The National Bureau of Statistics said that the consumer price index rose by an annual 2.7 percent last month. This was the same as in June, slightly lower than market expectations. The failure of the index to continue to rise on the back of the strong pick-up in June suggests that the rising momentum of prices could have eased.

In June, the index jumped sharply to 2.7 percent from 2.1 percent in May, arousing concerns that the rise in consumer prices could accelerate.

The July reading at least offers temporary relief for policymakers, who set an inflation target of 3.5 percent for this year.

In July, prices of food items rose strongly, up by 5 percent year-on-year. Those of vegetables, in particular, rose by nearly 12 percent as a result of adverse weather conditions, making it the largest contributor to the overall rise. As extreme weather conditions could affect some parts of the country in the remainder of the year, the prices of vegetables could remain high and so continue to push up inflation.

In the first seven months, however, the average rise was only 2.4 percent, far below the whole-year target of 3.5 percent, meaning the possibility is high that the target will be met, even if food prices do rise strongly in the coming months.

Meanwhile, producer prices, or the prices of goods when they left factories, fell by 2.3 percent from a year earlier, compared with a fall of 2.7 percent in June.

This suggests that domestic demand could be strengthening, a sign of improving economic conditions.

The industrial output growth, which was 9.7 percent year-on-year in July, a five-month high, and the stable growth of retail sales, 13.2 percent year-on-year, as well as the growth of fixed-asset investment in the same month, 20.1 percent year-on-year, also point to a stabilizing economy.

The Chinese economy still faces many challenges, such as growing local government debts. But the July data show that if the current recovery momentum can be maintained, growth could gradually pick up, providing more room for the reform-minded policymakers to continue their agenda of economic restructuring.

(China Daily 08/12/2013 page8)