China’s inflation eased to the slowest pace in 20 months while gains in industrial output and retail sales weakened, strengthening the case for a stimulus to spur growth in the world’s second-biggest economy.
Consumer prices rose 3.2 percent last month from a year earlier, the Chinese National Bureau of Statistics said yesterday, less than economists estimated.
Factory production gained 11.4 percent in January and last month combined from a year earlier, while retail sales increased 14.7 percent, both lagging the median analyst forecast. Data for the first two months of the year are distorted by a weeklong Chinese holiday.
“Today’s data, with surprisingly low retail sales and output continuing to weaken, point to economic growth further cooling to 8 percent or lower this quarter,” said Ding Shuang (丁爽), senior China economist at Citigroup in Hong Kong. Data this month could show further worsening if the government fails to cut banks’ reserve requirements for the third time since November last year, he said.
Producer prices were unchanged last month from a year earlier, the statistics bureau said. That compares with a median estimate for a 0.1 percent increase. The gauge rose 0.7 percent in January.
Fixed-asset investment, excluding rural households, rose 21.5 percent in January and last month combined from a year earlier, above the 20.5 percent median estimate of economists surveyed by Bloomberg News.
The statistics bureau did not release the year-on-year change for industrial production and retail sales in January or last month alone.
China’s government has done a terrific job in controlling -inflation, Stephen Roach, former non--executive chairman for Morgan Stanley in Asia and previously the bank’s chief economist, said at a conference in Shanghai on Thursday.
Concerns that China would have a so-called hard landing are “vastly overblown” even as economic growth becomes more unbalanced, Roach said.
Even so, “They need to focus more on the downside risk” to growth, said Qu Hongbin (屈宏斌), co-head of Asian economics research at HSBC Holdings PLC in Hong Kong, in a Bloomberg Television interview. “They need to react to those data and I think they will,” he said, predicting that the people’s Bank of China would lower banks’ required reserve ratios at least twice before the end of June.
Chinese Premier Wen Jiabao (溫家寶) this week set an inflation target of about 4 percent for this year, unchanged from last year. That goal takes into account risks from imported inflation and the rising cost of land, labor and capital, and will leave room to change the way prices of resources including electricity and oil are set, he told lawmakers at the National People’s Congress.
Tao Dong (陶冬), a Hong Kong-based economist at Credit Suisse Group AG, said the industrial--production report “looks bad” and is a “loud warning to the commodity bulls.” However, China’s leaders are unlikely to start a large-scale stimulus right away and might wait until data for this month “before making a decisive call on the direction of the economy,” Tao said.
China’s economic growth has moderated over the past four quarters as the eurozone debt crisis has crimped demand for exports and the government limited lending and imposed curbs on home purchases to rein in prices.
The slowdown could bottom out at 8.2 percent this quarter from a year earlier, said Zhu Haibin (朱海濱), chief China economist at JPMorgan Chase & Co in Hong Kong, while Nomura Holdings Inc projects growth could drop to as low as 7.5 percent.
Zhu said growth would accelerate in the second half of this year as the global economy improves and the government eases policies.
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