CPI growth slows to 2% in August, leaving room for policy easing

China's consumer price growth moderated to a four-month low in August, making it easier for the government to adjust policies in case of further economic slowdown.

The Consumer Price Index, the main gauge of inflation, expanded 2 percent from a year earlier in August, the National Bureau of Statistics said today.

The rate eased from the increase of 2.3 percent in both July and June, and turned out to be the slowest since April.

The Producer Price Index, the factory-gate measurement of inflation, dropped 1.2 percent year on year last month. The fall widened from the decrease of 0.9 percent in July, also indicating less inflationary pressure ahead.

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said China is facing more risks of deflation, which reinforces the call for more easing policies such as cuts in the reserve requirement ratio that allow banks to have more credit in hand.

"As China's inflation continues to trend down, we maintain our call that the central bank needs to cut the reserve requirement ratio for the whole banking system soon to tackle the deflation risk," Zhou said. "Such a cut will also facilitate an orderly de-leveraging in the shadow banking activities and help lower overall funding costs to support economic growth."

However, the central bank seemed to be reluctant to ease policies further, as it expected to maintain the growth of money supply at a reasonable pace, and viewed that the current growth of M2, which measures broad liquidity conditions, was sufficient enough to deliver a decent growth.

On Wednesday, Premier Li Keqiang said the Chinese government was not distracted by the minor fluctuations in individual performance indicators given the country's new normal state, suggesting smaller likelihood of the release of more supportive policies.