China inflation at 7-mth high, limits room for easing despite export tumble


* Stronger than expected CPI follows surprise export drop

* Sept CPI +3.1 pct yr/yr, vs forecast 2.9 pct

* Sept PPI -1.3 pct yr/yr, vs forecast -1.4 pct

* Sept CPI +0.8 pct from Aug, Sep PPI +0.2 pct from Aug

By Kevin Yao and Xiaoyi Shao

BEIJING, Oct 14 (Reuters) - China's annual consumerinflation rate rose to a seven-month high of 3.1 percent inSeptember as poor weather drove up food prices, limiting thescope for the central bank to manoeuvre to support the economyeven 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'ssecond-largest economy still faces a weak global environment andBeijing tries to tap the brake on credit-fuelled investment.

The inflation rate was higher than a median forecast of 2.9percent in a Reuters poll and August's 2.6 percent, but wasstill below the official target of 3.5 percent for 2013.

"We expect CPI inflation to rise further in Q4 and seerising risks that it may rise above 3.5 percent for some monthsin 2014," said Zhiwei Zhang, China economist at Nomura in HongKong.

"The rise of CPI inflation leaves little room for policyeasing as benchmark deposit rate is only 3 percent."

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

Month-on-month, consumer prices rose 0.8 percent, theNational Bureau of Statistics said, bigger than a rise of 0.5percent expected by economists.

Food prices gained 1.5 percent in September from August dueto droughts and floods in some areas, pushing up the CPI by 0.51percentage points, Yu Qiumei, a senior statistician at thebureau, said in a statement.

In annual terms, food prices jumped 6.1 percent.

"September CPI inflation gained more momentum on seasonalfactors and a low base effect from last year," said Li Huiyong,an economist at Shenyin & Wanguo Securities in Shanghai.

"But we think the inflation situation is still under wellcontrol and will not be a concern this year, especially when theeconomy is struggling with over-capacity problems."

China's exports dropped 0.3 percent in September from a yearearlier, against expectations of a 6 percent rise, data showedon Saturday.


Factory-gate deflation eased further in September, althoughin annual terms prices still recoded a 19th consecutive fall.

Producer prices fell 1.3 percent from a year earlier, asmaller fall than the 1.4 percent expected by the market and the1.6 percent drop in August.

However, there was some relief to manufacturers strugglingto cope with profit-eating price declines, as producer pricesrose 0.2 percent from August.

After slowing in nine of the past 10 quarters, the economylooks to have stabilised since mid-year after Beijing acted tohead off a sharper downturn with increased spending on publichousing construction, railways and tax cuts for smaller firms.

Annual economic growth is forecast to have accelerated to7.8 percent in the third quarter from 7.5 percent in the secondquarter, but the recovery could fizzle towards the year-end, theReuters poll showed.

Third-quarter GDP growth data, along with industrial output,fixed-asset investment and retail sales, is due on Friday.

Beijing has a growth target of 7.5 percent for 2013, whichwould be the weakest rate in more than 20 years, and hasrepeatedly said it would accept slower growth as it tries towean the economy off dependence on investment and exports infavour of domestic consumption.

"The economy faces some downward pressures, especially bylooking at the export data. Full-year GDP growth could be 7.6percent," said Zhou Hao, China economist at ANZ in Shanghai.

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