China: Inflation jumps as economy slows

September 9, 2012: 10:10 AM ET
china cpi inflation
Food prices, which account for more than a third of the inflation calculation, rose 3.4% during August.
ANAHEIM, CALIF. (CNNMoney)

After four straight months of declines, consumer price inflation has finally edged up in China.

Chinese consumers paid 2% more in August than they did a year ago, the government's National Bureau of Statistics reported Sunday. That's up from a 1.8% increase in July -- a two-and-a-half year low.

China's annual inflation rate rose 2.0% in August, the government's National Bureau of Statistics reported Sunday, up from 1.8% in July -- a two-and-a-half year low.

Food prices, which account for more than a third of the inflation calculation, rose 3.4% during the month.

Household finances in China are especially susceptible to fluctuations in food prices, as many poor families spend large percentages of their income on food.

Still, inflation remains at very low levels. As recently as one year ago, China's consumer price index stood above 6% -- well north of the government's stated inflation rate target of 4%.

The very low rate should allow the government more flexibility in pursuing economic stimulus.

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In July, officials said that annual economic growth dropped to 7.6% in the second quarter -- down from 8.1% the previous quarter.

The People's Bank of China twice lowered interest rates, and the central bank has also tried to spur growth by cutting the amount of money banks are required to hold in reserves.

But those measure seem to have fallen flat. Some analysts have recently lowered their growth forecasts for the rest of the year, while some noted that weakness is likely to extend into 2013.

Related: Meet China's middle class

On Friday, the government confirmed more action, this time in the form of a $157.7 billion investment in 55 new infrastructure products. Analysts said the move should help boost growth in the fourth quarter.

Zhiwei Zhang, and economist at Nomura, said in a research note that the projects -- which include 25 new subway lines -- are a sign that the government's policy stance "has become significantly more proactive."

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