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RPT-PREVIEW-China Sept CPI seen softer, PPI set for steep drop

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* Sept CPI may have eased to 1.9 pct y/y; PPI down 3.6 pct

* PPI fallen most of this year; inventory cuts seen limiting falls

* Softer prices give policymakers some policy flexibility

* CPI and PPI due Oct. 15By Lucy Hornby

BEIJING, Oct 9 (Reuters) - China's annual consumer price inflation likelysoftened to 1.9 percent in September, flirting with July's two-and-a-half yearlow, with producer prices set to record their steepest drop since October 2009,a Reuters poll of 26 economists found.

Easing consumer prices and outright falls in factory gate prices are freshsigns that the world's second-biggest economy is struggling to escape the tug ofa global slowdown that has set China on course for its weakest full year ofgrowth since 1999.

The economists' median forecast for a 1.9 percent rise in China's consumerprice index

last month from a year earlier represented a slightsoftening from August's increase of 2.0 percent.

They predicted the producer price index would drop by an annual 3.6 percent,the largest fall since China pulled out from the global financial crisis, versusa 3.5 percent drop in August.

"Seasonally, vegetable prices are clearly falling and although pork priceshave risen a little, overall, the agricultural price gains compared with theprevious month have been less than expected, driving CPI to a lower level thanforecast," Ping'an Securities said in a research note.

Limp prices have given some flexibility to policymakers to gently easemonetary policy to support growth without raising inflationary risks, but theyalso likely confirm a widely-held view among analysts that China will register aseventh straight quarter of slowing growth in the July-September period.

China's economic slowdown is expected to reach its nadir in Q3, with arecovery of momentum delayed until the final quarter, leaving growth for 2012likely to fall below 8 percent, a level unseen since 1999, a Reuters pollearlier in September showed.

The central bank has responded by cutting interest rates twice this year,giving banks more freedom to set borrowing costs by liberalising rates at themargin and released an estimated 1.2 trillion yuan ($190 billion) for lending bylopping 150 basis points from required reserve ratios in three moves sinceNovember last year.

Official CPI and PPI figures will be released on Monday, Oct. 15, whilethird quarter GDP data will be published on Thursday, Oct. 18.

Producer prices have fallen for most of this year, as falling demand hasdragged down commodity input costs.

Some respondents pointed to inventory cuts as helping to shore up prices forraw materials such as steel, thus limiting the drop in producer prices.

Ping'an, for instance, expects producer prices to hit their lowest point for2012 in September and rebound in October, while others, like UBS, note thatChina's destocking continues.

That impression is in line with the most recent HSBC manufacturingpurchasing managers index, where a sub-index measuring stocks of finished goodsedged down to its lowest level since April, approaching the 50-point line thatseparates expansion from contraction.

The sub-index measuring input prices remained below 50 for the fifth monthin a row, according to the HSBC PMI.

For more previews on upcoming Chinese economic data next week, click

(percent change from a year earlier)

FORECAST PPI CPIANZ -3.5 1.8Bank of Communications -2.4 1.8BBVA -4.0 1.8BOC International Securities -3.1 2.2BofAML -3.8 1.9CDB Securities -3.3 2.0China Construction Bank -3.2 1.8CICC -4.0 1.8CITIC Securities -3.5 2.0Deutsche Bank -3.3 1.7Everbright Securities -3.7 2.0Goldman Sachs -3.7 1.7Huarong Securities -3.6 1.9Hwabao Trust -3.2 1.9Industrial Bank -4.0 1.9ING Financial Markets -3.0 2.0JPMorgan Chase -3.3 1.8Mizuho Securities -3.4 1.9OCBC -3.7 1.8Peking First Advisory -3.7 2.0Pingan Securities -3.7 1.9Sealand Securities -3.8 2.0Shanghai Securities -3.6 2.3Shenyin & Wanguo -3.5 1.9Societe Generale -3.7 1.9UBS -3.4 1.8

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Median -3.6 1.9High -2.4 2.3Low -4.0 1.7

> For more stories on China's economy

> China's economic indicator calender and polls

> All Chinese economic data(Editing by Jacqueline Wong)

((lucy.hornby@thomsonreuters.com)(+86 10 6627 1269)(Reuters Messaging:lucy.hornby.thomsonreuters.com@reuters.net))

Keywords: CHINA ECONOMY/CPI

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