China Inflation Cools To 1.7 Percent in October

on Nov 9, 2012

Chinese inflation slowed in October giving the state scope to further ease its monetary policy if needed to support growth in the world’s second biggest economy.

**Inflation Cools down**
Official data released on Friday 9 November showed that consumer prices rose 1.7 percent last month from a year earlier, down from 1.9 percent in September and below analysts’ expectations. According to the Chinese National Statistics Bureau prices fell by 0.1 percent on a month-to-month basis.
“Muted inflation pressure will provide more room for the government to introduce additional policy easing or stimulus measures,” said Lu Ting, chief China economist at Bank of America Corp. in Hong Kong. “The top task for the central bank now is to prevent growth from slowing further while stemming the rebound in home prices, which is the major constraint for easing in 2012.”

The subdued inflation figure prompted Zhou Xiaochuan, central bank governor, to express optimism about the Chinese economy: “October data are showing signs of improvement. The domestic economy is evolving in a good direction,”
!m[Signs of Recovery amid Once-in-a-Decade Leadership Transition](/uploads/story/756/thumbs/pic1_inline.png)In 2011 inflation spiked as a result of the government’s massive stimulus package meant to muscle the country through the global financial crisis. This year the Party has been more careful with spending by still approving a number of investment projects, but not showering the economy with cash as in the 2009-2010 period.

The Chinese economy is forecasted to have grown at 7.4 percent in the previous quarter, marking its seventh consecutive contraction. Policymakers have reduced benchmark interest rates twice this year, lowered bank reserve ratios three times since late 2011 and made repeated liquidity injections into the financial system to underpin slowing growth in the short-term.

**Leadership Transition**
The better-than-expected inflation data comes at an opportune time for the Chinese Communist Party, which is holding its 18th National Congress this week meant to unveil the country’s leaders for the next ten years. Rising costs pulling down the standard of living has been one of the main complaints of ordinary citizens.
Yesterday Hu Jintao, current state president expected to be succeeded by Xi Jinping in March, made a speech regarding the goals and aspirations of the party. Out of his speech one of the most widely circulated phrases on Weibo, China’s Twitter-like microblog, was “We must not take the old path that is closed and rigid, nor must we take the evil road of changing flags and banners,”, a statement clearly meant to discourage the new leaders from bold political moves.

Mr Hu also set a new economic goal for 2020 – doubling China’s 2010 GDP and average incomes. According to economists, Mr Hu’s target is attainable if the country achieves an average of 7 percent GDP growth in the next nine years.
Despite a decade of reforms and the expansion of a large and active private sector the state still has a tight grip on the “commanding heights” of the economy, Lenin’s term for the key economic sectors, including energy, media, finance and telecommunications.


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