CHINA DAILY:PPI grows at slowest pace in 8 months

PPI grows at slowest pace in 8 months

By Wang Xu (China Daily)
Updated: 2008-11-11 06:42

The producer price index (PPI) grew 6.6 percent in October - the slowest pace in eight months - giving the government more leeway to boost the economy.

The main gauge of factory-gate inflation was released Monday amid gloomy economic prospects and a worldwide slide in energy and raw material prices.

Analysts say the October consumer price index, which will be released today, is also likely to ease as food prices moderate.

The PPI peaked at 10.1 percent in August, a 12-year high, and has been declining since then, the National Bureau of Statistics said.

"The downward trend gives the government leeway to take more aggressive monetary and fiscal action to stimulate the economy," said Jing Ulrich, JP Morgan Chase & Co chairwoman of China equities.

Peng Xingyun, a researcher at the Institute of Finance and Banking affiliated to the Chinese Academy of Social Science (CASS), attributed the drop in PPI to declines in commodity prices and the lag effect of earlier tightening measures.

He echoed Ulrich's view that the easing in inflation would provide more room for the Chinese government to loosen macro-economic controls to stimulate the economy.

"There is little chance that inflation would rebound in the near future," Peng said. "The government is now focusing on tackling the financial crisis and spurring economic growth."

Signs of a slowdown have been seen over the past month as export growth continued to weaken.

The nation's economic growth slowed to 9 percent year-on-year in the third quarter, the lowest in five years. It grew at 10.1 percent in the second quarter and 10.6 percent in the first quarter.

The central bank has cut borrowing costs thrice over the past two months. The State Council on Sunday unveiled a 4 trillion yuan ($586 billion) stimulus package and said it would adopt "active" fiscal and "moderately loose" monetary policies.

As part of the massive stimulus package, the central government will spend 100 billion yuan in the fourth quarter.

Industrial production growth slowed to about 8 percent in the year to October, the first time it has been in single digit since the end of 2001, Reuters quoted an unnamed official as saying. The official figures are due to be released on Thursday.

Other figures released by NBS on Monday include:

the factory gate prices of food climbed 5.4 percent last month from a year ago and those of durable goods slid 0.4 percent.

the purchasing prices of raw materials, fuel and power rose 11 percent in October, down from 14 percent in September.

The PPI from January to October rose 8.2 percent from a year earlier, compared with 8.3 percent in the nine months through September.