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Tuesday, August 12, 2008

China Inflation Drops To 6.3% In July

China's annual inflation rate dropped to 6.3% in July - the slowest pace in 10 months - and significantly down from February's 8.7 percent rise which was the fastest rate in 12 years.

The slowdown may encourage government policies aimed at sustaining growth in the world's fourth-biggest economy rather than fighting inflation. While policy makers have halted the yuan's appreciation and boosted tax rebates to help exporters, data yesterday showing the fastest producer-price inflation in 12 years underscores the risk that consumer prices will rebound.

China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.

The yuan rose 4.2 percent in the three months through March and 2.3 percent in the second quarter before stalling in the third. The currency remains Asia's best performer against the dollar this year. Gains make exports more expensive and cut import costs. China's exporters are concerned that a weakening global economy will erode shipments. Exports are now rising at an annual 22.6 percent rate, significantly down from the 25.7 percent pace achieved for whole year 2007.

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