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Chinese inflation rises to 2.0 percent in November

Neil Connor
Workers make shoes at a factory in China's Fujian province. Producer prices -- which measure the cost of goods as they leave factories -- declined 2.2% year-on-year, falling for the ninth straight month, data showed.

China's inflation rate increased to 2.0 percent in November, official figures showed Sunday, in another sign of a continued rebound in the world's second biggest economy following a marked slowdown.

It is the first increase in the consumer price index since August and a significant leap from October, when inflation stood at a 33-month low of 1.7 percent.

But the November figure signals that inflation for the whole of 2012 will be far lower than the government's target of 4.0 percent, and will remain stable throughout 2013 as China's economy continues to expand, analysts say.

"The Chinese economy is in the sweet spot now with rebounding GDP growth, rebounding earning growth and low inflation," said Lu Ting, China economist at Bank of America Merrill Lynch.

Lu also said he expected inflation to increase to around 2.2 percent in December and forecasted a rate of 3.0 percent throughout 2013.

Ren Xianfang, senior China economist with IHS Global Insight, said the November figure does not suggest China is heading to a return to high inflation, which peaked at 6.5 percent in July 2011.

"The reacceleration in consumer price inflation, now back to the two percent territory, is sparking fears about another inflationary shock next year," Ren said.

"We believe inflation rates will pick up in 2013, but not dramatically. The price rebound going forward will be best described as a gradual end of disinflation, rather than acceleration in inflation."

Inflation became a number one issue for Beijing over the course of 2012 after it peaked last year.

China's Communist Party leaders reacted to drive down high consumer prices, which is seen as a threat to its key goal of maintaining social stability.

But the most recent National Bureau of Statistics figures suggest tackling inflation is now becoming less of an issue, analysts say.

"Bottom line is that inflation won't be the number one concern next year," said Ren.

A research note from ANZ Bank said it expected China's inflation figure will be about 2.7 percent across the whole of this year -- well below the government's target.

The November figure compares with a median 2.1 percent forecast for November in a survey of 12 economists by Dow Jones Newswires.

Food prices, which account for nearly one-third of China's CPI, rose 3.0 percent in November year-on-year, the NBS said.

Vegetable prices increased 11.3 percent year on year as cold weather disrupted supplies, according to the statistics.

Producer prices -- which measure the cost of goods as they leave factories -- declined 2.2 percent year-on-year, falling for the ninth straight month, the data showed. Producer prices fell 2.8 percent in October.

The easing of producer prices deflation is seen as a welcome sign by analysts.

"The improvement in industrial prices, which drives profit growth, will be the key foundation for continued rebound of the economy," said Ren.

The November figure was in line with the country's latest purchasing managers index (PMI), which rose to 50.6 percent in November from 50.2 percent in October. Any figure above 50 percent shows that the manufacturing sector is expanding.

China's economy grew 7.4 percent in the third quarter until the end of September, its weakest performance in more than three years and the seventh straight quarter of slowing expansion.

But recent numbers, including manufacturing, trade and industrial output, have led to optimism among economists that the world's second biggest economy is rebounding.

China is scheduled to announce industrial production, retail sales and fixed asset investment figures for November later on Sunday.