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Inflation at 7-mth high in China

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SummaryChina's annual consumer inflation rate rose to a seven-month high of 3.1% in September as poor weather drove up food prices

China's annual consumer inflation rate rose to a seven-month high of 3.1% in September as poor weather drove up food prices, limiting the scope for the central bank to manoeuvre to support the economy even as exports showed a surprise decline.

But few analysts expect a further sharp rise in inflation or policy tightening in coming months as the world's second-largest economy still faces a weak global environment and Beijing tries to tap the brake on credit-fuelled investment.

The inflation rate was higher than a median forecast of 2.9% in a Reuters poll and August's 2.6%, but was still below the official target of 3.5% for 2013. “We expect CPI inflation to rise further in Q4 and see rising risks that it may rise above 3.5% for some months in 2014,” said Zhiwei Zhang, China economist at Nomura in Hong Kong. “The rise of CPI inflation leaves little room for policy easing as benchmark deposit rate is only 3%.”

At the same time, analysts see little risk of a tightening given inflation was below the full-year target.

Month-on-month, consumer prices rose 0.8%, the National Bureau of Statistics said, bigger than a rise of 0.5% expected by economists. Food prices gained 1.5% in September from August due to droughts and floods in some areas, pushing up the CPI by 0.51 percentage points, Yu Qiumei, a senior statistician at the bureau, said in a statement. In annual terms, food prices jumped 6.1%.

“September CPI inflation gained more momentum on seasonal factors and a low base effect from last year,” said Li Huiyong, economist at Shenyin & Wanguo Securities. “But we thi-nk the inflation situation is still under control and will not be a concern this year, especially when the economy is struggling with over-capacity problems.”

China's exports dropped 0.3% in September from a year earlier, against expectations of a 6% rise, data showed on Saturday. Factory-gate deflation eas-ed further in September, altho-ugh in annual terms prices still recoded a 19th consecutive fall.

Producer prices fell 1.3% from a year earlier, a smaller fall than the 1.4% expected by the market and the 1.6% drop in August. However, there was some relief to manufacturers struggling to cope with profit-eating price declines, as producer prices rose 0.2% from August.

After slowing in nine of the past 10 quarters, the economy looks to have stabilised since mid-year after Beijing acted to head off a sharper downturn with increased spending on pu-blic housing

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