Housing, Fuel Costs Ease in China

Published:2011-10-10    Source:WSJ

Housing prices in China declined for the first time this year, according to a private index, and Beijing cut government-controlled fuel prices in response to tumbling global oil prices, two welcome developments in the country's battle against inflationary pressures. China Consulting Company.

Costly imported energy, as well as a pricey housing market that some analysts say is a risky bubble, have been prominent features of the inflationary landscape in China. Along with persistent increases in food prices, they have kept inflation the top priority for Chinese policy makers, even as domestic economic growth slows and the world economy falters. That has caused worries among investors who count on China as a reliable growth engine.

In a statement over the weekend, the National Development and Reform Commission, the country's top economic-planning agency, said the cut in fuel prices "will help lower social costs, alleviate overall price-level pressures and stimulate relatively fast and stable economic growth."

Nonetheless, declines in housing and fuel prices are unlikely to have a large impact on the country's official consumer-price index, in part because of the way the index is computed by the National Bureau of Statistics.

Food prices account for just over 30% of the CPI basket, making them by far the most important factor in the official inflation gauge.

UBS economist Wang Tao said in a recent note that she expects the consumer-price index for September to be up 6.3% from a year earlier, a bump up from August's 6.2% pace, as prices for food staples such as pork have remained stubbornly high.

Housing costs are the next-largest component of the consumer-price index at just under 19%, although housing prices aren't included in the measure. The housing-cost component is composed of mortgage interest rates and utilities such as electricity and water, which are all government-controlled.

Data provider China Real Estate Index System said Saturday that housing prices in 100 major cities in China slipped a modest 0.03% in September from August. That compares with a similarly modest 0.07% uptick in August from July. Average prices for new property in September were up 6.15% compared with a year earlier, a slower increase than August's 6.9% year-on-year rise.

The data provider said a survey of property developers and real-estate agencies showed the average home price was 8,877 yuan ($1,392) per square meter in September, a touch lower than August's 8,880 yuan and slightly higher than July's 8,874 yuan.

The survey, which the company compiles together with online real-estate brokerage SouFun Holdings Ltd., is widely watched because China scrapped a national property-price index in January.

Housing sales in major cities have slowed in recent months after China implemented a series of measures to curb property speculation—including higher interest rates and limits on house purchases—as part of an effort to make homes more affordable and thus head off potential social instability.

Also on Saturday, the NDRC, the economic-planning agency, said it would lower the ceiling for gasoline and diesel prices by 300 yuan per ton. That amounts to a 3.2% cut in gasoline prices and a 3.5% cut in diesel prices, according to Wall Street Journal calculations.

The last adjustments took place in April, when the NDRC raised gasoline and diesel prices by 500 yuan and 400 yuan per ton, respectively, as global oil prices rose in response to Mideast political turmoil.

The NDRC noted that in April and early May, West Texas Intermediate crude oil fetched $110 per barrel in international markets, and Brent crude oil cost $120 per barrel.

But by Oct. 4 those prices had fallen to $75.70 and $99.80, respectively.

Following Sunday's adjustments, the average gasoline and diesel retail ceiling benchmarks will be 9,080 yuan per ton and 8,230 yuan per ton, according to Dow Jones calculations. The exact price ceiling varies by location within China.