China's inflation edges up, driven by food costs

[September 11, 2010]  BEIJING (AP) -- China's inflation edged higher in August as the nation's worst flooding in a decade drove an increase in food costs and industrial growth continued to quicken.

Consumer prices rose 3.5 percent in August compared with a year earlier, the National Bureau of Statistics announced Saturday. It was the highest level in 22 months and a small increase over July's 3.3 percent.

Much of the increase was fueled by a jump in food prices, which rose by 7.5 percent because summer storms and floods ruined crops and disrupted shipping.

Overall, the country's Consumer Price Index, increased 2.8 percent year-on-year in the first eight months of 2010, said Sheng Laiyun, the NBS spokesman. The Chinese government had set a target of trying to keep inflation within 3 percent for the year.

Sheng downplayed concerns about rising inflation, saying: "There are factors fueling price rises, but I think there are even more factors reducing prices."

Industrial growth accelerated slightly to 13.9 percent year-on-year in August from July's 13.4 percent increase as China's recovery continues.

"For the past three months, it has fluctated between 13 percent to 14 percent so it's obvious that industrial operations have shifted from fast growth to stable growth now," Sheng said.

All 39 industries saw year-on-year growth in August, with textiles up 11.6 percent; chemical materials and products up 12.9 percent; general equipment manufacturing up 20.1 percent, and transportation equipment manufacturing up 16.6 percent, Sheng said.

Analysts expect inflation will remain in check, with the food price spike expected to have only a temporary effect. Overall, China will continue to see a modest slowing in industrial growth by year's end.

"On closer examination, underlying inflation remains subdued, and in the details the growth data points to a continued slowdown in the months ahead," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates. "We see little in the August data to change the narrative of slowing growth and fading inflation in the final months of the year, or to spark a policy response from the government

China's power generation in August rose 12.6 percent from a year earlier to 390.3 billion kilowatt-hours, Sheng added.

Meanwhile, retail sales of consumer goods hit 1.257 billion yuan ($185 million) in August, marking an 18.4 percent rise year on year. Sheng said the increase in consumption in August was mainly attributed to better-than-expected auto sales.

Investment in factories and other fixed assets also increased, reaching 14.1 trillion yuan ($2.1 billion) in the first eight months this year, a year-on-year increase of 24.8 percent.

[Associated Press; By TINI TRAN]

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