Slowing Chinese inflation opens door to more fiscal and monetary stimulus

Tim Wallace
Follow Tim
CHINESE industrial output grew at its slowest rate for a year and inflation fell sharply in October, statistics from the country’s National Bureau of Statistics showed yesterday.

Consumer price inflation fell to 5.5 per cent, down from 6.1 per cent in September and well below July’s three-year peak of 6.5 per cent. Inflation in producer prices fell further, to five per cent.

Growth in industrial output fell to 13.2 per cent in the year to October, after officials expressed concern over weakening global demand.

Analysts believe the government is leaning towards attempting a new stimulus to the economy.

“Should Western economies go into recession and export demand dry up, then a fresh flood of fiscal and monetary stimulus is likely – the government will do what it can to avert a hard landing,” said Tim Ohlenburg from the Centre for Economics and Business Research.

“It has a massive fiscal and monetary parachute in store, so a soft landing remains the most likely scenario.”

Premier Wen Jiabao added to expectations of a stimulus, writing on a government website that “since October, overall domestic prices have been falling noticeably,” particularly highlighting the decline in pork and egg prices.

Food inflation is key to China’s consumer prices, and peaked at 14.8 per cent year-on-year in July,