China's consumer inflation falls to 2-year low

[December 11, 2008]  BEIJING (AP) -- China's inflation fell to its lowest level in nearly two years as sharp increases in food and energy costs eased, giving Beijing more room to spur growth through spending without igniting price rises.

Consumer prices rose by 2.4 percent in November over the year-earlier period, the government reported Thursday. That was down from October's 4 percent increase and well below February's 12-year high of 8.7 percent.

Beijing spent a year trying to cool a surge in inflation but in recent months has been forced to switch to trying to shore up slumping economic growth.

The easing in inflation allows authorities leeway to cut interest rates further and inject money into the economy. They announced a half-trillion dollar stimulus package last month that calls for higher spending on construction, tax cuts and aid to farmers and the poor.

"Falling inflation leaves the government more room to implement an 'accommodative monetary policy' and to step up fiscal stimulus," said Merrill Lynch economists Ting Lu and T.J. Bond in a report.

Chinese leaders meeting to make economic policy for 2009 pledged Wednesday to maintain "steady and relatively fast" economic growth, promote job creation and support exports.

The urgency of spurring growth intensified with the government's report Wednesday that China's trade growth collapsed in November due to slowing global demand. Exports fell by 2.2 percent, the first decline in seven years, raising the threat of heavy job losses in export industries that employ millions of Chinese workers. Imports fell by 17.9 percent.

Beijing has cut interest rates four times since September, including a 1.08 percentage point cut on Nov. 26, its biggest in 11 years.

Politically sensitive food costs rose by a still-high 5.9 percent in November over the year-earlier period, including a 9.3 percent rise for pork, China's staple meat, according to the National Bureau of Statistics. But that was down from October's 8.5 percent rate and February's high of 23.3 percent.

The cooling of inflation has eased pressure on consumers. But the decline has happened so fast that analysts say China faces the danger it might tumble into deflation, or a cycle of falling prices that depresses economic growth.

"Deflationary risks are emerging, especially in view of weak downstream demand," Jing Ulrich, JP Morgan's chairwoman for China equities, said in a report. "Food price growth in 2009 could slide into negative territory."

Inflation surged in mid-2007 due to shortages of pork, grain and other basic food items.

That alarmed communist leaders, who worried about possible unrest among China's poor majority, who have missed out on the country's economic boom. Beijing scrambled to raise farm output by boosting aid to farmers and cutting taxes on food imports.

The government ended its anti-inflation campaign on Dec. 1 with the lifting of food price controls imposed earlier in the year.

November's gain in the consumer price index was the lowest since January 2007, when CPI rose 2.2 percent.

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On the Net:

National Bureau of Statistics (in Chinese):
http://www.stats.gov.cn/

[Associated Press; By JOE McDONALD]

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