The mainland's fiscal revenue fell significantly last month, while inflation slowed markedly, showing that the country's economy has been hit harder than expected by the global economic crisis and may face a contraction. Fiscal revenue, which includes tax receipts and other income flowing to the provinces and the central government, dropped 3.1 per cent from a year earlier to 379.24 billion yuan (HK$428.97 billion). The fall was far steeper than October's 0.3 per cent decline, as policy-related tax cuts and slower economic growth eroded revenue, the Ministry of Finance said. October's contraction was the first in 12 years. Meanwhile, consumer inflation dived to a 22-month low of 2.4 per cent. Economists said this signalled a risk of deflation but provided room for the government to introduce stimulus measures to boost growth. 'The odds of deflation have grown sharply,' said Ben Simpfendorfer, a China economist with Royal Bank of Scotland. Mr Simpfendorfer said he expected falling commodity prices and weakening demand to eventually translate into lower prices of core consumer goods. As fiscal revenue declined, expenditure rose 16.5 per cent last month to 525.4 billion yuan. The rapid increase in spending and shrinking revenue led to a fiscal deficit of 146.2 billion yuan. The robust spending growth came as the mainland invests 100 billion yuan in the fourth quarter as part of a 4 trillion yuan stimulus package to be carried out through 2010. Central government revenue fell 8.4 per cent last month from November last year to 204.09 billion yuan, the ministry said. For the first 11 months, fiscal revenue rose 20.5 per cent from a year earlier to 5.8 trillion yuan. Spending rose faster, at 23.6 per cent, but the total of 4.58 trillion yuan was lower than total revenue. Thus, the government recorded a fiscal surplus of 1.22 trillion yuan for the period. The country's fiscal revenue grew 33.3 per cent in the first half, but the third quarter saw growth of only 10.5 per cent, and the number is in decline. 'It is natural to see the contraction of fiscal revenue, as economic growth slowed sharply in the recent few months,' said Qu Hongbin, the chief China economist at HSBC Holdings. The problem is, experts say, lower revenue leaves the government with less funds for its stimulus plan. The consumer price index's rise last month was lower than October's 4 per cent, the National Bureau of Statistics said yesterday. Food prices, which make up one-third of the index basket, fell 1 per cent from October. The producer price index figures released on Wednesday showed wholesale inflation fell last month to a 31-month low of 2 per cent year on year. Both inflation barometers triggered fears that the economy may be headed towards deflation. Mr Qu reversed his forecast for the consumer price index next year to a decline of 0.2 per cent from a 2.5 per cent increase. He said the People's Bank of China must act quickly and strongly to head off deflation expectations. He expected the central bank to cut rates by about 2 percentage points and ease the reserve requirement ratio by 4 percentage points by June next year.