China's slowing inflation

China’s inflation eased to the slowest pace in 20 months while new loans, industrial output and retail sales were below analysts’ forecasts, boosting the case for easing monetary policy in the world’s second-biggest economy.

Consumer prices gained 3.2 percent in February from a year earlier, the National Bureau of Statistics said. Local-currency loans were 710.7 billion yuan ($113 billion) in February. Factory production rose 11.4 percent in January and February combined and retail sales advanced 14.7 percent.

Asian stocks rallied on a debt deal in Greece and speculation that China’s moderating inflation and growth will lead the ruling Communist Party to loosen policy. Citigroup Inc. says a cut in banks’ reserve requirements may come as soon as this month, while the government also has more room to boost wages and ease price controls on energy and water. 

The benchmark MSCI Asia Pacific Index of stocks rose 1 percent as of 6 p.m. in Tokyo, while China’s Shanghai Composite Index gained 0.8 percent. China’s interest-rate swaps had their biggest weekly decline in three months.

Below Estimates

The rise in consumer prices was less than the 3.4 percent median estimate in a Bloomberg News survey of 35 economists and below January’s 4.5 percent rate. Retail sales were forecast to rise 17.6 percent in January and February, while analysts predicted industrial output growth of 12.3 percent.

Producer prices were unchanged in February from a year earlier, the Beijing-based statistics bureau said. That compares with a median estimate for a 0.1 percent increase. The gauge rose 0.7 percent in January.

Home Prices

China’s home sales declined 25 percent in the first two months of the year as the government pledged to maintain its housing curbs, separate data showed today.

The statistics bureau didn’t release the year-over-year change for industrial production and retail sales in January or February alone.

Resource Prices

Premier Wen Jiabao this week set an inflation target of about 4 percent for 2012, unchanged from last year. The goal takes into account risks from imported inflation and rising costs of land, labor and capital and will leave room to change the way prices of resources including electricity and oil are set, he told lawmakers at the National People’s Congress.

Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG, said the industrial-production report “looks bad” and is a “loud warning to the commodity bulls.” Still, China’s leaders are unlikely to start a large-scale stimulus right away and may wait until reports on March data “before making a decisive call on the direction of the economy,” Tao said.

Food price gains last month slowed to 6.2 percent from a year ago, compared with a pace of 10.5 percent in January, and accounted for 62 percent of the total inflation rate, the statistics bureau said today. Consumer prices fell 0.1 percent from the previous month.

Malaysia Rate

Elsewhere in Asia, Malaysia’s central bank is forecast to keep its benchmark interest rate at 3 percent for a fifth meeting today.

In Europe, Germany said exports rebounded 2.3 percent in January from the prior month, while French industrial production in the same period also bounced back 0.3 percent. Italy’s industrial output probably dropped in January, while Spain’s retail sales declined.

U.S. employers probably added more than 200,000 workers for a third straight month in February, economists predicted ahead of a Labor Department report today. The jobless rate stayed at 8.3 percent, a separate survey showed.

China’s economic growth has moderated for the past four quarters as Europe’s debt crisis crimped demand for exports and the government limited lending and imposed curbs on home purchases to rein in prices. (Bloomberg)