China's rate of inflation at slowest in 14 months

PUBLISHED : Saturday, 10 December, 2011, 12:00am
UPDATED : Saturday, 10 December, 2011, 12:00am


China's stubbornly high inflation eased last month, partly reflecting last year's high base, a cooling economy and softening commodity prices, and analysts expect price pressures to continue to ease.

The consumer price index (CPI) rose 4.2 per cent year on year last month, the National Bureau of Statistics said yesterday. The rate was the slowest pace since September of last year and well below the 5.5 per cent recorded in October.

The producer price index (PPI) gained 2.7 per cent from a year ago last month, the slowest rate of increase since December 2009, and significantly down on the 5 per cent increase in October.

Economists said they expected inflationary pressure to continue to ease in coming months as the economy slowed, which would probably convince policymakers to shift their focus to pro-growth measures from combating inflation.

'The data confirmed that inflation is easing faster than expected, reflecting cooler demand and the impact of earlier supply-side measures,' said Qu Hongbin, a HSBC economist. 'The sharply easing PPI should have a knock-on impact on CPI, helping to sustain the latter's current slowdown.'

In the CPI, the food component rose 8.8 per cent year on year last month, while non-food rose 2.2 per cent. Pork prices, accounting for 19 per cent of the headline CPI growth, gained 26.5 per cent, after rising 38.9 per cent in October.

The PPI fell 0.7 per cent last month compared to October. Seasonally-adjusted, the PPI fell for the fifth consecutive month, falling 0.3 per cent month on month, according to JPMorgan Chase. The biggest falls were seen in mining equipment and raw materials.

'The easing in the PPI is even faster than expected, and attributable to an accelerated moderation in imported inflation as well as a softening of domestic demand,' said Liao Qun at CITIC Bank International.

Economists expect the easing to continue next year. JPMorgan Chase and Bank of America Merrill Lynch expect the rate of growth in CPI to fall to 3 per cent in the middle of next year as the economy slows.

Nomura forecasts the central bank to cut interest rates by 25 basis points in the first quarter and the reserve requirement ratio by 200 basis points next year.