China’s inflation slows

China’s inflation rate fell in October which has meant that the pressure to contain price rises has fallen, as the government is in the process of implementing a massive stimulus package to boost slowing growth.

Inflation is now at its slowest pace in 17 months, which means that it is now possible to make further interest rate cuts to help sustain the world’s fourth-biggest economy from falling into recession, even though the country’s economy has grown by over 8 percent this year, the outlook does not look certain.

Consumer prices rose by 4 percent in October from a year earlier following efforts by the government to cool sharp rises in sensitive food prices. However, recent political stability has caused a positive reaction and following a fall in prices, the danger of an inflationary spike has cooled, amid the pumping of 4 trillion yuan by Beijing.

It is the downward trend in inflation which has allowed the government leeway to take more aggressive monetary and fiscal policy action without overly affecting consumer prices.

The increase in inflation during 2007 and into 2008 was due, in part, to a pork shortage, although as a result of a reliable supply of food as well as falling commodity and energy prices, inflation has been slowing for the last six months.

From a 12 year high back in February 2008, inflation has halved and although the People’s Bank of China Governor, Zhou Xiaochuan, has announced three recent interest rate cuts, analysts are predicting further action to come.

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