China Inflation Cools to 4.9%

China's inflation weakened to the slowest pace since June 2007 and export growth cooled, stoking speculation the government will cut taxes and ease loan restrictions to spur the world's fourth-largest economy.

Consumer prices rose 4.9 percent in August from a year earlier, less than economists estimated, after gaining 6.3 percent in July. Exports rose 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said.

Cooling inflation leaves room for the government to counter power shortages by raising energy prices, encouraging refiners and generators to boost output.

China's producer prices climbed 10.1 percent, the fastest pace since at least 1996, after rising 10 percent in July.

Consumer-price inflation has slowed for four months, edging closer to the central bank's target of 4.8 percent for the year. February's 8.7 percent pace was the fastest in 12 years. Food prices rose 10.3 percent in August from a year earlier after gaining 14.4 percent in July. Non-food prices increased 2.1 percent, the same as in July.

The expansion in factory and property spending, one of the key drivers of the economy, maintained its pace in the eight months through August. Urban fixed-asset investment rose 27.4 percent to 8.49 trillion yuan from a year earlier, the statistics bureau said today. That compared with a 27.3 percent gain for the first seven months.

China's economy expanded 10.1 percent in the second quarter. The pace of growth remains the fastest of the world's 20 biggest economies.

Weaker overseas demand, rising costs and a higher currency have put pressure on exporters of shoes, toys and clothes.

China Inflation Cools to 4.9%, Bloomberg
9/15/2008 8:19:56 AM