China holds off tightening as inflation cools

 
City A.M. Reporter
China's inflation pulled back in August from a three-year high, underlining expectations that price pressures have peaked and the central bank can hold off on further tightening of monetary policy, figures today show.

Still, the central bank is far from easing policy. Analysts said inflation, which fell to 6.2 per cent in August from 6.5 per cent in July, will remain elevated for several months and well above the government's target of four per cent.

In addition, policy easing could encourage investment away from bank deposits, which are much lower than inflation, feeding Beijing's fears of asset bubbles that could destabilise the economy.

"Consumer inflation has obviously peaked. Inflation is no longer a big problem now," said Dong Xian'an, an economist at Peking First Advisory in Beijing.

"On the policy front, tightening steps are at least on hold now. We've seen some structural easing. In the medium term, China should speed up fiscal reforms."

The pull back in inflation eased investors concerns over price pressures in the world's second-biggest economy, prompting Asian stocks to edge higher.

August's consumer inflation of 6.2 per cent was in line with forecasts of economists, who argue that inflation has or is peaking.

Producer price inflation slowed to 7.3 per cent in August from 7.5 per cent in July, the National Bureau of Statistics has said.