Chinese inflation falls to 1.8%

Posted on August 9, 2012

Chinese inflation slowed to 1.8 per cent in July, opening up more space for the government to stimulate the stuttering economy.

Consumer price inflation has dropped to its lowest level in 30 months, after falling from June’s 2.2 per cent rise. Factory-gate inflation is even weaker, with producer prices falling 2.9 per cent in July. China will release other important economic data, including investment and industrial output, later on Thursday.

    With Europe on the brink of recession and the US economy struggling, the world’s second-largest economy, stands as the brightest spot on a bleak global map. But China has also been facing trouble.

    Chinese economic growth slowed to an annualised 7.6 per cent in the second quarter, its slowest pace since the height of the global financial crisis in 2009. This has prompted Wen Jiabao, the premier, to declare that the government’s priority was to support growth

    Since the start of June, the central bank has cut interest rates twice, state planning officials have accelerated approvals for investment projects, and a series of local governments have announced large spending plans.

    Most analysts anticipate these measures will spur a recovery, and are expecting stabilisation in the third quarter and a more pronounced upturn in the following one.

    But the strength of this recovery is expected to be much milder than the rebound China experienced in 2009 when the government pushed through a mammoth stimulus programme.

    That spending binge ultimately created stubbornly high inflation and a surge in local government debts, so Beijing has been much more reluctant to launch a similarly big stimulus this time.

    Moreover, the job market, though weakening, has held up relatively well, obviating the need for major policy support for the economy. With China embarking on a once-in-a-decade leadership transition later this year, the government is focused on ensuring that the economic and social backdrop is as trouble-free as possible.

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