China's August inflation eases to 4.9 percent

China's politically sensitive consumer inflation eased in August to a 14-month low, the government said Wednesday, and analysts said Beijing might shift from fighting price rises to revving up the slowing economy.

Consumer prices rose 4.9 percent in August over the same month last year, the National Bureau of Statistics said. That was down from July's 6.3 percent and well below February's 8.7 percent rate — the peak of an inflation surge that began in mid-2007.

"With these numbers we move much closer to the time when Beijing decides inflation is not an issue anymore," said Standard Chartered economist Stephen Green in a report.

Chinese leaders have made a priority of fighting inflation and have imposed credit curbs and price controls on food. But they also are facing an unexpectedly sharp slowdown in China's rapid economic expansion and are trying to keep growth robust.

Wednesday's data "suggest that policymakers will continue to take a prudent and gradual approach in shifting its policy focus from inflation to growth," said Lehman Brothers economist Minchun Sun.

Analysts have cut growth forecasts this year to as low as 9 percent, down from 2007's explosive 11.9 percent. That still would be by far the fastest rate for any major country, but Beijing wants to keep growth high to reduce poverty and create new jobs.

"There are increasing noises that this tightening policy has lasted too long, and more and more worries about growth skidding seriously," Green said.

Adding to pressure to improve conditions for business, Chinese companies were squeezed in August as wholesale inflation accelerated to a new 12-year high of 10.1 percent, according to the government data.

Beijing has given tax breaks to textile producers that have seen exports drop and is expected to roll out other measures targeting struggling industries.

The inflation surge began in mid-2007 and was initially blamed on shortages of pork and grain. The government responded with price controls and subsidies to encourage farmers to raise production. But its efforts were hampered by winter storms, a jump in oil prices and China's devastating May 12 earthquake.

Food prices rose sharply in August, climbing by 10.3 percent, but that was down from July's 14.4 percent and well below February's peak of 23.3 percent.

"The continuous decline of the CPI is a positive sign as it shows that the government's measures to ease inflationary pressures were effective," said the bureau's chief economist, Yao Jingyuan, quoted by the official Xinhua News Agency.

Communist leaders worry about the political impact of high inflation in a society where families spend up to one-third of their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests.

The recent rise in wholesale costs adds to pressure on Chinese companies to raise retail prices. But many are in industries with intense competition that prevents them from passing on higher costs to consumers.

That is squeezing corporate profits and could lead to job losses.

"The focus in terms of inflation has shifted toward non-food prices," said Jing Ulrich, chairwoman of China equities for JP Morgan Securities, in a report. "With power shortages occurring in many parts of the country, anticipated further hikes in energy prices would feed into higher costs for various items."

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National Bureau of Statistics: http://www.stats.gov.cn

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