Inflation in China continued to ease from a 37-month high for a second month in September, but remaining inflationary pressures limit the possibility of a shift in macro-economic policy.

The country's consumer price index (CPI), a main gauge of inflation, climbed 6.1 percent year-on-year in September from 6.2 percent in August, the National Bureau of Statistics (NBS) said Friday.

On a monthly basis, consumer prices rose 0.5 percent last month, the NBS said in a statement on its website.

In the first nine months of this year, China's CPI climbed 5.7 percent from the same period last year, up from 5.4 percent year-on-year in the first half, said the NBS.

Food prices, which account for nearly one-third of the basket of goods in the nation's CPI calculation, were up 13.4 percent in September from the previous year and 1.1 percent month-on-month, according to the NBS.

China's CPI hit a 37-month high of 6.5 percent in July, extending far beyond the Chinese government's full-year target of 4 percent for 2011.

Zhou Wangjun, deputy chief of the Price Department of China's price regulator the National Development and Reform Commission, said China's inflation has passed its peak, and consumer prices will stabilize and decline mildly in future.

Zhou sees the downward trend as a result of the government's amping up cooling measures and reducing carryover effects, he said in an exclusive interview with Xinhua.

Economists said that although the September CPI remained high, they expect domestic inflation to continue to ease in the coming months as a slowdown in the global economy weighs down demand, said economists.

"Price growth will continue to ease in October, but it will not be a significant decline," said Liu Yuanchun, deputy head of the School of Economics of the Renmin University of China.

Liu attributed the weakening inflation to the good autumn grain harvest, a significant drop in international commodity prices, a further slowdown in the global economy and a future strain in liquidity.

For the first time in 16 months, the Chinese government reduced retail prices for gasoline and diesel by 300 yuan (about 47 U.S. dollars) per tonne starting Monday, a move expected to ease domestic inflation.

Zhang Liqun, a researcher with the Development Research Center of the State Council, or China's Cabinet, also believes that the good autumn harvest will bring more supplies to ease food prices.

Zhang estimates that, for the whole year, China's consumer price will grow by 5 percent from last year, one percentage point higher than the government's target.

"The government has underestimated this year's new price factors, especially the hike in domestic pork prices and international commodities," he said.

UNSHAKEN TIGHTENING POLICY

Despite the downward trend, it is too soon to determine whether China's macro-economic policy will loosen as many believe that inflationary pressures are far from being completely eased.

In the interview with Xinhua, Zhou Wangjun warned of emerging price factors that could push up future price levels, including an imbalance in market supply and demand and higher labor costs.

Additionally, business owners, especially those of small- and medium-sized enterprises, are facing pressure from higher costs in funding and production, which will be reflected in a rise in prices for small commodities like shoes and toys, said Zhou.

"China is facing long-term pressure from imported inflation," he said, noting that the debt crisis, low interest rate and excessive liquidity issues in developed countries are bringing inflation risks to the whole world.

Liu Ligang, director of economic research department of ANZ Greater China, said China's battle against inflation has not yet seen remarkable results.

China's inflation rate is expected to experience significant growth early next year due to the currently high monthly CPI growth, he said.

Therefore, it is too early for the Chinese government to loosen its monetary policy, Liu added.

To curb soaring inflation, the People's Bank of China (PBOC), the country's central bank, has raised the benchmark interest rate three times this year and increased the reserve requirement ratio six times.

China's Producer Price Index (PPI), a major measure of inflation at the wholesale level, rose 6.5 percent year-on-year in September, down from 7.3 percent in August.

China's gross domestic product rose by 9.5 percent year-on-year in the second quarter of 2011, tapering off slightly from the 9.7-percent growth posted in the first quarter and 9.8 percent in the fourth quarter of last year.

Economic growth data for the third quarter is scheduled to be released by the NBS on Tuesday.

Qu Hongbin, HSBC's chief China economist, said he expects that China's economic growth is "still holding up well," and the central bank will maintain its monetary policy over the coming months.

Even if a renewed global recession were to hit China, it is wrong to expect a turnaround in monetary policy, considering elevated inflationary pressures and China's relatively lowered dependence on external demand, he said in a note to the press.

"Moreover, the lesson of overstimulation from the last round of stimulus is still fresh," said Qu.

China's recent decision to provide more credit and fiscal support to small enterprises shows that the government is targeting eases in policies toward striking a better balance between inflation and growth, said economists.

Liu Ligang said he expects the central bank to cut the reserve requirement ratio for medium- and small-sized banks to better support the development of small enterprises.

However, China's policymakers should not ignore the worsening issue of negative real interest rates, which would threaten the security of China's financial system, he said.

The PBOC will probably have another interest rate hike this year to ensure financial security, but it is very likely to be conducted on the deposit rate, Liu said.