Beijing reported a smaller fall in prices last month, reinforcing the view that deflation is slowing, helped by the massive government spending on infrastructure. The benchmark retail price index (RPI) last month fell 2.9 per cent year on year, compared with a fall of 3.3 per cent in September, Xinhua said, quoting the State Statistical Bureau. Despite the improvements, last month's fall marked a full year for the mainland's RPI in negative territory, underlining slowing incomes and weak consumer demand. The broader consumer price index (CPI), including service prices, fell 1.1 per cent year on year, compared with a drop of 1.5 per cent in September. In the first 10 months, RPI was down 2.5 per cent year on year, while CPI was down 0.7 per cent. To counter deflationary pressure, Beijing said it would spend at least 200 billion yuan (about HK$186 billion) through bond issues and bank credit to boost the economy. However, Salomon Smith Barney warned that the recent pick-up in economic activity may not be sustainable if consumer demand continued to be weak. The brokerage's economist Ma Guonan said in a report that slow household income growth and falling marginal propensity contradicted the official figures of strong retail sales and industrial growth. 'These observations underpin our view that any temporary boost to China's economic growth from the government's latest monetary and fiscal stimulus package may not be sustainable if consumer confidence cannot be turned around in the months ahead,' Mr Ma said. It also underlined the brokerage's cautious view towards the mainland's economic growth prospects for next year. In October, industrial growth rose to 10.6 per cent from 7.6 per cent in July, and retail sales volume added 11.5 per cent in the third quarter compared with 9.5 per cent growth in the second quarter. He said household income growth was very slow in the second quarter at about 8 per cent after adjustment for inflation, compared with more than 20 per cent in 1994 and 1995. 'The momentum of low income growth should be enough to cap any potential uptrend in consumer spending,' Mr Ma said. The brokerage's estimates also showed that the marginal propensity to consume had dropped to 0.55 between last year and this year from 0.82 between 1992 and 1996, indicating that mainland consumers were less willing to spend. Mr Ma said the consumers were making more precautionary savings due to a series of structural reforms, including reform on state enterprises, housing, medical insurance and education.