Inflation slows but food prices prove a problem

China's inflation eased for a second straight month in September, making way for a possible adjustment in policies supportive of growth.

The Consumer Price Index, the main gauge of inflation, expanded 6.1 percent from a year earlier last month, the National Bureau of Statistics said yesterday.

That was down from August's 6.2 percent and the 37-month high of 6.5 percent in July. However, food costs remained stubbornly firm by jumping 13.4 percent, the same as in August. And pork prices alone rose 43.5 percent.

The Producer Price Index, the factory measurement of inflation, cooled to 6.5 percent last month from August's 7.3 percent, the bureau said.

"Consumer price inflation appears to have peaked," said Alaistair Chan, an economist at Moody's Analytics. "Headline inflation is expected to trend lower for the near to medium term, although core inflation will remain an issue."

Qu Hongbin, chief economist at HSBC, said the easing inflationary pressure may trigger a minor adjustment in macroeconomic policies in the final quarter of the year.

"We expect tightening policies will become more flexible. But it does not mean a complete reverse of the current prudent policy stance. The central bank may allow more liquidity on the market to rescue cash-strapped small firms," Qu said.

Liu Ligang, an economist at the Australia and New Zealand Banking Group Ltd, also said there was the possibility of a partial policy easing by lowering the reserve requirement ratio on small and medium-sized commercial banks so as to encourage lending to SMEs or specific sectors.

However, Barclays Capital economist Chang Jian said the People's Bank of China was unlikely to shift its anti-inflation bias before there was a clear downward trend in inflation.

In the first three quarters, China's inflation jumped 5.7 percent year on year, far exceeding the government's target of keeping it under 4 percent.

The Chinese Academy of Social Sciences, a major government think tank, projected this year's inflation may top 5.5 percent.

To combat price rises, China has lifted interest rates three times so far this year, along with six reserve requirement ratio increases.

However, policymakers have become reluctant to launch more tightening measures since June after second-quarter economic data showed moderating growth.