Eurozone inflation slows in July

29 July 2011 Last updated at 10:26 GMT Some economists now think the ECB will leave interest rates unchanged at 1.5% for the rest of 2011 Eurozone inflation unexpectedly slowed in July to 2.5%, raising questions about when the European Central Bank (ECB) might raise interest rates again.

The preliminary estimate is down from 2.7% in June, according to the European Union statistics office Eurostat.

The July reading comes as a surprise after data earlier this week suggested inflation in Germany, Europe's largest economy, edged up to 2.4%.

The ECB has raised rates twice so far this year to try to control inflation.

The central bank wants to keep inflation below 2%.

'Compelling case'

No change had been expected in the inflation rate in July.

It is not clear what drove the decline, as Eurostat's initial estimate does not give a breakdown of the numbers - that is only released with the final estimate.

Economists said that the chance of the ECB raising rates from the current 1.5% before the end of the year now appeared less likely.

"While a further interest rate hike in the fourth quarter is clearly very possible, we suspect that slowing eurozone growth and recurrent sovereign debt problems will present an increasingly compelling case for the ECB to hold off from further monetary policy tightening this year," said Howard Archer from IHS Global Insight.

"We also anticipate that the case for further ECB action in 2011 will be diluted by mounting evidence that the second-round inflationary effects from higher energy and commodity prices are being contained.

"We currently expect the ECB to keep interest rates at 1.5% through the rest of 2011, then lift them gradually further to 2.25% by the end of 2012."

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Foreign investment in China slows

15 July 2011 Last updated at 08:31 GMT Foreign companies and investors have been to get a share of China's fast-growing market Foreign direct investment (FDI) in to China has slowed as the government steps up its efforts to rein in the country's economic growth rate.

In June, foreign investment grew just 2.8% to $12.86bn (?7.9bn) compared to a year earlier, down from May's 13.4%.

However, during the first six months of the year China attracted investments worth $60.9bn, up 18.4% on a year ago.

On Wednesday, China said its economy grew by 9.5% in the second quarter.

China's rapid expansion in recent years has seen it become the world's second-largest economy and one of the top destinations for foreign investors.

Last year foreign investors pumped $105.7bn in to the Chinese economy in an attempt to get a share of the fast-growing economy.

Asset bubbles? Continue reading the main story

Tighter credit conditions in 2011 have made the property sector vulnerable to a correction, particularly for high-end properties in China's largest cities”

End Quote Rajiv Biswas IHS Global Insight However, China's expansion has been powered by a credit boom in the country.

Chinese banks lent out record sums of money in the past two years to ensure that the country's high growth rate was maintained during the global financial crisis.

That has led to concerns that the current path of growth may not be sustainable and may have created asset bubbles, where some investments like property are overvalued.

"There are concerns about potential asset bubbles being formed in the Chinese property sector," said Rajiv Biswas of IHS Global Insight.

Mr Biswas added that while the introduction of measures by the government to curb lending had been good, investors were worried about their impact on growth.

"Tighter credit conditions in 2011 have made the property sector vulnerable to a correction, particularly for high-end properties in China's largest cities," he said.

At the same time, authorities have also had to tackle rising consumer prices that have been driven up by a surge in food and fuel costs.

That has seen the country's central bank raise interest rates three times this year.

Mr Biswas said that accelerating inflation coupled with higher cost of borrowing had investors worried whether China would be able to maintain its growth rate.

"A key lever of tighter monetary policy has been restrictive measures on lending by banks, which has significantly tightened credit conditions and corporate liquidity for Chinese firms, which has also impacted on investment decisions," Mr Biswas said.

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UK inflation slows unexpectedly

12 July 2011 Last updated at 09:35 GMT Falling prices for toys, games and hobbies helped bring inflation down The UK inflation rate fell unexpectedly in June, with the Consumer Prices Index (CPI) measure dropping to 4.2%.

Markets had expected the figure to hold steady again at 4.5%.

The Retail Prices Index (RPI) measure of inflation - which includes mortgage interest payments - also fell, from 5.2% to 5%, according to the Office for National Statistics.

The slowdown came courtesy of falling prices for games, toys and hobbies, as well as for clothing and footwear.

'Aggressive discounting'

Clothing prices fell 1.9% compared with the previous month, led by falling prices for women's outerwear and footwear, as summer sales began early, the ONS said.

"Seemingly the ONS is picking up more aggressive discounting in some of the more discretionary spending areas," said Ross Walker, economist at RBS Financial Markets.

The price data echoes poor retail sales revealed earlier on Tuesday by the British Retail Consortium, which suggested that shops which had cut prices aggressively had seen a small recovery in volumes.

The ONS also said that the cost of audio-visual equipment also eased, thanks to discounting on some products.

Meanwhile, food costs continued to rise sharply, jumping 0.9% in the month, with notable increases in the cost of bread, cereals, meat, milk, cheese and eggs.

Yet to peak

Despite the fall in June's inflation rate, the figures mean the CPI rate has still overshot the Bank of England's 2% target for 35 of the past 41 months.

Continue reading the main story

Anyone looking for evidence of homegrown price pressures will struggle to find it in the latest inflation numbers.”

End Quote Stephanie Flanders Economics editor, BBC News Earlier this month, the Bank's monetary policy committee voted again to maintain interest rates at the record low of 0.5%.

"The retreat in consumer price inflation in June boosts the case for the Bank of England to hold fire on interest rates for many more months to come to give the fragile, faltering economy every chance to develop growth momentum," said Howard Archer, economist at IHS Global Insight.

Economists also said the data revived the possibility that the Bank might decide to increase its "quantitative easing" programme of buying up government debt in order to pump more cash into the economy, if the recovery falters.

It comes as separate data showed the UK's trade deficit increased in May, putting a further dampener on the economy.

Declan Curry finds out whether inflation is sweet or sour

Core inflation - which strips out volatile food and fuel prices and is closely watched by the Bank - fell from 3.3% to 2.8%, its lowest level since November.

"The fall in the core rate... might be the first real sign that the weakness of households' spending power is starting to bear down on underlying price pressures in the High Street," said Jonathan Loynes of Capital Economics.

But he warned that despite the fall, inflation had probably yet to peak, with a rise to 5% or above still very likely, due to rising energy and commodity prices.

A 15%-20% rise in household energy bills is expected to start affecting inflation data from August.

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China's growth rate slows to 9.5%

13 July 2011 Last updated at 09:31 GMT The government's attempts to rein in growth and rising prices are likely to slowdown China's growth rate

China's economic growth has slowed further in the second quarter after the government stepped up its battle against inflation.

Growth was 9.5% in the three months to the end of June compared with a year earlier. That is down from 9.7% in the previous quarter.

China says controlling prices is its top priority after inflation hit a three-year high in June.

However, other data on Wednesday showed it may be tough to slow growth further.

China's factory output grew by a better-than-expected 15% in June, while retail sales surged by 17.7%.

Analysts say further tightening measures are likely before the year is over.

Monetary measures

China has already raised interest rates three times this year, with the most recent increase coming last week.

"With inflation hitting a new three-year high in June, further monetary measures look likely," said George Worthington, an economist at IFR in Sydney.

He added that the current central bank interest rate of 6.56% could rise another 50 basis points by the end of September.

Sheng Laiyun, a spokesperson for China's statistics bureau said the government's policies would be "targeted, flexible and effective" to ensure the target to inflation under control is met.

"It's not easy and China has done a great job to maintain fast economic growth when the global situation is complex and volatile," he said.

The prospect of China's economic growth slowing has raised worries over how this might affect the world's other main economies.

However, IFR's Mr Worthington downplayed these concerns.

Wednesday's "data should also help to dispel the wilder fears of an economic collapse in China as a result of the anti-inflation fight", he said.

Stability

Despite the slowdown, China's growth rate remains one of the quickest in Asia, and the country is cementing its position as the world's second-biggest economy.

However, strong domestic demand and global problems with food production have led to an increase in the cost of food and other essential commodities, such as fuel.

The surging cost of food and fuel has become a threat to China's economic growth

This, in turn, has led to the occasional outbreak of unrest, something that the government is keen to control and limit.

Some analysts say that a slowdown in the growth rate is something China will have to accept if it wants a stable political and pricing environment.

"The biggest problem for China is not growth deceleration, it is inflation," said Chris Leung, senior economist at DBS Bank in Hong Kong.

"So in order to solve inflation, growth will have to slow down."

Credit-led growth

China's rapid expansion in recent times has been fuelled by a credit boom in the country.

As the world economies grappled with the global financial crisis, Chinese banks lent out record sums of money in an attempt to ensure that the country's high growth rate continued.

However, analysts said while the easy availability of cash had fuelled growth, it had also created issues for the government.

"You have to look at what's driving growth in China, it's mainly investments," said Patrick Chovanec, an associate professor at Tsinghua University in Beijing.

"This investment is being financed by expanding the money supply, which is fuelling inflation," he added.

Analysts also said that given the huge amount of loans that had been extended by the Chinese banks, there were concerns about asset bubbles being formed in the country.

"A lot of the investment that is going out, there is a real question being raised about whether it is going to generate return and a lot of it has started to show up as bad debt in the banking system," Prof Chovanec said.

He warned that the current path of growth in China was unsustainable.

"What we are seeing is not necessarily a strong economy, it's an economy that has been pumped up on steroids," he said.

However, Prof Chovanec said that despite the government efforts to rein in growth, a lot of people China wanted the credit-led growth to continue.

"There is a tug-of-war between those who say keep lending and let growth continue, versus those who are more concerned about inflation and want to rein it in," he said.

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China's manufacturing slows down

1 July 2011 Last updated at 03:58 GMT The manufacturing sector been one of the biggest drivers of growth in the Chinese economy China's manufacturing sector expanded at its slowest pace in 28 months following government policies to prevent the economy from overheating, according to an official survey.

China's purchasing manager's index (PMI) fell to 50.9 in June from 52 in the previous month.

The PMI is a key an indicator of conditions in the sector, which is a big contributor to China's growth.

China is the world's second-largest economy.

Even though the figure remained above the threshold level of 50, indicating expansion in the sector, the drop from the previous month indicates that growth is slowing.

Beijing has been trying to slow down its credit-fuelled growth in an attempt to prevent asset prices from overheating.

Analysts said the government's policies are starting to hurt the manufacturing sector.

"It think the primary reason is monetary tightening and a reduction of credit," said Sitao Xu of the Economist Intelligence Unit in Beijing.

"Both central bank and the government are taking a hawkish stance to prohibit high credit growth."

'Synchronised slowdown' Continue reading the main story

What the government is trying to do is prevent the economy from overheating ”

End Quote Sitao Xu Economist Intelligence Unit While internal policies are curbing growth in the sector, analysts said that external factors are also playing a key role.

"The other reason is the synchronised slowdown in developed countries," Mr Sitao said.

The recovery in the US has not been as fast as expected, hence demand from the world's biggest economy has been sluggish, he said.

He added that the debt crisis in European countries had also affected demand for Chinese goods from the region.

However, the overall health of the Chinese economy remained robust, despite the slowdown in manufacturing, he said.

"I don't think it's the end of the world, we are not seeing a hard landing or a recession," he said.

"What the government is trying to do is prevent the economy from overheating."

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Eurozone services growth slows

3 June 2011 Last updated at 09:54 GMT The service sectors in core economies performed better than those in peripheral countries, Markit said Growth in the eurozone services sector slowed slightly in May, while business confidence fell to its lowest level in a year-and-a-half, a survey suggests.

The closely-watched Markit PMI Services index fell to 56.0 from 56.7 in April. Any reading above 50 indicates growth.

However, the rate of job creation increased slightly, Markit said.

France and Germany continued to drive the longer-term recovery in the sector, while Italy, Spain and the Irish Republic saw limited growth, it added.

France recorded "by far the strongest" increase in business activity with the rate of growth only slightly lower than April's figure, which was a 10-year high. Germany also reported "robust" growth.

But outside these two economies "the trend was much weaker", Markit said.

Two-speed recovery

Business expectations for activity in one year's time also fell to their lowest level since November 2009.

This reflected less new business and concerns about the wider economic outlook.

The fall in confidence meant the rate of growth in the service sector was likely to slip further in the coming months, Markit said.

"The first quarter may well therefore be as good as it gets this year," said Chris Williamson, chief economist at the research group.

"Growth disparities between the core and the periphery are a growing concern, as deficit-fighting austerity measures hit domestic demand in the debt-laden periphery, leaving service providers particularly exposed."

However, he said despite the slowdown, the eurozone service sector remained "robust" and should make a "significant contribution" to overall economic growth in the current quarter.

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Indian inflation slows in April

16 May 2011 Last updated at 09:31 GMT Analysts believe more rate rises from the Indian central bank are likely India's inflation rate eased in April, but was still higher than expected as fuel and food prices remained high.

The main wholesale price index was up 8.66% in April from a year ago, but was less than the 9.04% rise seen in March.

Food prices in India remain extremely high. The cost of fruit has gone up by a third in the past year.

The figures comes as the government is expected to announce an increase in state-controlled prices of diesel and cooking gas.

Supporters of the main opposition party, the BJP, blocked roads and rail tracks in protests against a rise in state fuel prices.

But the Congress Party-led ruling coalition does not face new tests at the polls until early next year after last week's state elections, giving it the opportunity to raise fuel costs.

And state-run refiners raised petrol prices by 5 rupees (11 cents, 6 pence) a litre from Sunday, almost 9%, a record increase that is likely to fuel inflation in Asia's third-largest economy.

The Reserve Bank of India has raised interest rates nine times since March 2010 and economists expect it to do so again in June and July.

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