BEIJING—China's consumer
prices rose the fastest in nearly
two years in August and
industrial-output growth
rebounded, but the pickup
doesn't look set to prompt
Beijing to raise interest rates or
drive the yuan higher.
The consumer price index rose
3.5% from a year earlier on a
jump in food prices, accelerating
from July's 3.3% increase for the
biggest gain since October 2008,
data showed Saturday. The
August rise matched the median
3.5% increase forecast in a Dow
Jones Newswires survey.
The markets will be watching
Beijing this week as it release
inflation and industrial output
data. Meanwhile the DPJ
leadership race is down to the
wire in Japan. MarketWatch's
Chris Oliver reports.
But despite the pickup in
inflation, reported by the
National Bureau of Statistics,
economists expect price rises will
ease in the coming months as
food prices were temporarily
boosted by flooding and other
adverse weather. Food prices
were the main contributor to
inflation, rising 7.5% from a year
earlier while nonfood prices rose
just 1.5%.
Markets are on the lookout for
the People's Bank of China to
push the yuan sharply higher or
raise interest rates to curb
inflation, but economists saw
little need for such tightening in
Saturday's data.
An adviser to the central bank
appeared to suggest as much.
Xia Bin told Dow Jones the
economic situation doesn't justify
any sharp policy changes. The
government should fine-tune
macroeconomic policy but
"won't and shouldn't" change
the basic policy direction, he
said.
As for the currency, Mr. Xia said
China aims to let the yuan move
more freely in line with economic
needs but that this a long-term
goal. He added that it's up to
the PBOC decide how to
implement the country's
exchange-rate reform.
Some economists said there are
signs that macroeconomic policy
is in fact being loosened.
"It is an increase in pork
production, rather than a hike in
interest rates, that is required to
deal with China's current bout of
price pressure," Tom Orlik, an
analyst at research firm Stone &
McCarthy, said in a research
note.
Industrial production rose 13.9%,
up from 13.4% in July, and well
above expectations for a 12.9%
rise, which would have continued
a slowing trend in recent
months.
Output has now "stabilized" with
the growth rebound, the first
uptick in the growth rate this
year, said statistics bureau
spokesman Sheng Laiyun. "We
think this is a good
phenomenon."
Goldman Sachs economist Yu
Song called the output bounce
"very strong. I believe it must be
policy-related."
The gain is probably due, at least
in part, to a speedup in the
approval of infrastructure
investments since mid-July, while
an acceleration in money-supply
growth similarly indicates "an
effective loosening of monetary
policy in July and August," Mr.
Yu said.
China's broadest measure of
money supply, M2, jumped
19.2% at the end of August from
a year earlier, up from 17.6% at
the end of July, the People's
Bank of China said Saturday. The
increase was well above forecasts
that money supply growth would
be flat from July.
The PBOC let the yuan jump
Friday, setting its reference rate
at the strongest level against the
dollar since the central bank
began publishing the daily fixing
in 1994. This was interpreted by
many observers as an attempt by
China to cope with growing
momentum in Washington to
adopt punitive legislation against
Beijing.
The move capped a significant
rise--by the tame standards of
the yuan's tightly controlled
trading--over the past week, but
it still leaves the Chinese
currency just 0.8% stronger
against the dollar than it was
June 19, when Beijing ended the
currency's two-year peg to the
dollar.
Economists said Saturday's data
don't show a great need for
yuan appreciation.
A rapid, "one-way" rise isn't
consistent with China's stated
goal of having "two-way"
flexibility in the exchange rate,
said Galaxy Securities chief
economist Zuo Xiaolei. "The yuan
will undergo a fluctuating
upward trend in the future, but
the pace of appreciation won't
be too great. We expect the
yuan to rise by 2-3% by the end
of the year."
Financial institutions in China
extended 545.2 billion yuan ($
80.53 billion) in new loans in
August, up from 523.8 billion
yuan in July and above
expectations for 500 billion yuan.
Urban fixed-asset investment
rose 24.8% in the January-August
period from a year earlier,
slowing slightly from the January-
July 24.9% increase. Economists
had expected urban FAI to rise
24.5% in the January-August
period.
China doesn't issue monthly data
for urban FAI.
Retail sales rose 18.4% in August
from a year earlier, picking up
from July's 17.9% increase.
The producer price index, a
gauge of factory-gate prices,
rose 4.3% in August from a year
earlier, slower than July's 4.8%
rise and below the median 4.5%
rise forecast by economists.
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