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Tuesday, April 9, 2013

China inflation eases, but some economists worried

By Market Watch

Los Angeles, Apr.9, stocks to watch .- China’s consumer inflation eased in March, data out Tuesday showed, with the less-than-expected rise in prices helping stocks but worrying some analysts.
The consumer price index (CPI) for March rose 2.1% from a year earlier, a milder gain than the 2.4% projected in a Dow Jones Newswires survey, the National Bureau of Statistics said.
The result marked a considerable cooling from February’s 3.2% rise, but above January’s 2% inflation rate.
Services helped lead the rise, increasing 3.1% from the year-ago period, while food prices rose 2.7%, the bureau said.

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The Hong Kong and Shanghai stock markets extended their opening gains after the data, with the Hang Seng Index(HSI:HK:HSI) rising 1.1%, up from a 0.7% advance ahead of the numbers.
“The China data is slightly better than forecast, and the CPI falling is positive. Expect to see a mild recovery in Hong Kong today but turnover to remain light,” said Kim Eng Securities director for sales trading Andrew Sullivan.
The producer price index (PPI), meanwhile, fell 1.9% from the year-earlier period, just below Dow Jones Newswires’s forecast for a 2% drop. The index had dropped 1.6% in February.
Some analysts saw the easing inflation as freeing the central bank’s hand in terms of policy, with J.P. Morgan analysts saying the milder price gains “will ease market concerns on the likelihood of policy tightening in the near term.”
However, IHS economists Xianfang Ren and Alistair Thornton saw signs of trouble for the wider economy.
“The economic rebound China has experienced over the last few months should, by all means, have brought about greater inflationary pressure. But, both CPI and PPI readings for March point to subdued inflation. ... At best, the recovery remains fragile,” they wrote in a note following the data release.
“Despite this weakness [in the March numbers] though, inflationary trends are on the up. ... This means that the economy is due for some monetary tightening,” they said.
However, IHS’s Ren and Thornton said that “traditional monetary tightening” such as bank-reserve hikes and interest-rate increases would likely have to wait until the second half of the year, as the government is already seeking to tighten the property and non-traditional lending markets.
J.P. Morgan, by contrast, tipped interest rates and bank reserve requirements to remain on hold through the end of the year.
The inflation statistics came a day ahead of the scheduled release of Chinese trade data. ...
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