(Updates with economist's comment in final paragraph)
June 9 (Bloomberg) -- China's consumer prices rose the least in two years in May and industrial output and retail sales trailed estimates, adding pressure for more loosening after this week's interest-rate cut.
Inflation slowed to 3 percent from a year earlier, the National Bureau of Statistics said today, compared with the 3.2 percent median forecast in a Bloomberg News survey. Production increased 9.6 percent, lower than a projected 9.8 percent gain, and retail sales increased 13.8 percent, the Beijing-based bureau said in separate statements.
Today's data adds to concerns that global growth is stalling as Greece teeters on the edge of exiting the euro, Spain prepares a request for a bank bailout and U.S. job growth weakens. Premier Wen Jiabao may introduce additional stimulus to protect a full-year growth target of 7.5 percent even as the nation wrestles with bad loan risks from local government debt.
"These data should defeat any remaining complacency that the policy response has been adequate to maintain steady growth," said Shen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd. in Hong Kong. "More dramatic easing, especially in housing and local government financing vehicles is urgently needed and necessary to avoid a hard landing in the Chinese economy."
Shen, who previously worked for the European Central Bank, said he expects at least one more reduction in interest rates and three cuts in banks' reserve requirements this year.
Credit Growth
The reserve ratio has dropped by 150 basis points in three cuts since November to spur credit growth and now stands at 20 percent for the biggest banks.
The People's Bank of China lowered benchmark lending and deposit rates by 25 basis points effective yesterday, taking one-year borrowing costs down to 6.31 percent and one-year savings rates to 3.25 percent. It also allowed banks more leeway to set their own interest rates.
China's stocks fell yesterday, capping the biggest weekly slide this year, after the central bank's move intensified concerns the nation's economic slowdown is deepening. Stocks in Europe declined yesterday after Fitch Ratings cut Spain's long- term credit rating while the Standard & Poor's 500 Index rose on speculation central banks around the world will add stimulus to boost growth.
Slowing inflation "is what gave the central bank the confidence to cut interest rates" on June 7, said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, who accurately forecast the consumer prices reading. "Given the falling producer prices, China's inflation outlook remains benign and we expect another cut in banks' reserve requirements in June to boost slowing economic activities."
Trade Slowdown
ANZ said in a note yesterday it expects reductions totaling another 150 basis points this year while further interest-rate cuts will depend on inflation.
China customs data tomorrow may show exports and imports grew last month by less than the government's 10 percent target this year. Overseas sales probably increased 7.1 percent from a year earlier while purchases rose 5.5 percent, according to the median estimates in Bloomberg News surveys.
Nations are acting to shore up growth as the global economy suffers its steepest slowdown since the recession ended in 2009.
Borrowing Costs
Australia and Brazil lowered interest rates over the past two weeks while the European Central Bank left the door open at a June 6 press conference for a cut in borrowing costs. Federal Reserve Chairman Ben S. Bernanke told a Congressional committee this week that policy makers will discuss later this month whether to do more to spur growth.
India cut its benchmark interest rate in April for the first time since 2009 and may lower borrowing costs again when it meets on June 18, according to Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong.
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