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China's inflation falls as food prices ease

China's inflation falls as food prices ease

March 9th, 2012 by JOE McDONALD, AP Business Writer in News

BEIJING (AP) - China's inflation fell sharply in February, giving Beijing more leeway to stimulate its slowing economy.

Consumer price inflation declined to a 20-month low of 3.2 percent from January's 4.5 percent, data showed Friday. Inflation in politically sensitive food costs declined even more markedly, falling to 6.2 percent from the previous month's 10.5 percent.

The decline gives Beijing room to cut interest rates or ease other curbs to stimulate slowing economic growth without concern about igniting a new price spiral. The World Bank and International Monetary Fund have warned China and other developing countries to prepare for a possible global slowdown this year.

"China's February price data makes it clear that inflation pressures are easing," said Moody's Analytics economist Alaistair Chan in a report. "This gives the government scope to ease monetary policy."

Inflation is politically dangerous for the Communist Party because it erodes economic gains that underpin the party's monopoly on power. A price spike last year stoked frustration among a public that is angry about pervasive corruption, a yawning gap between rich and poor, pollution and product safety scandals.

Inflation had declined steadily from July's 37-month peak of 6.5 percent but rebounded in January, sparking concerns that pressure for prices to rise had not been extinguished.

The government's official target calls for holding inflation below 4 percent this year.

Liu Chunhui, a Shanghai physician, complained that prices are still rising rapidly even though the official figures show the rate easing. He said a market where he shops raised the price of bread 20 percent last month.

"The data don't match what I feel," said Liu, 46. "Prices are still going up, especially for food, vegetables, bread and cake, milk and so on."

Lei Shujie, a freelance designer, said she has cut back on eating out because restaurants are shrinking portion sizes to cope with higher costs.

"The quantity of the dish is obviously less than before, although the price is still same," said Lei, 27. "I just feel that money now is not as valuable as before."

Consumer inflation for the combined January-February period was 3.9 percent, the National Bureau of Statistics said. Analysts often look at the two months together to compensate for the weeklong Lunar New Year holiday, which falls at different times during that period each year and distorts data on factory production and consumer spending.

Economic growth slowed to a 2 1/2-year low of 8.9 percent in the final quarter of 2011 as Chinese leaders tried to steer a rapid expansion to a more sustainable rate. They reversed course in December and promised easier lending after exporters were hurt by weak global demand. But they say controls meant to cool surging housing costs will stay in place.

The government has yet to announce major changes, but financial analysts say regulators are quietly easing access to credit. Housing prices have begun to ease but are still near record levels and Chinese leaders say they want further declines.

The IMF warned last month that China's projected growth this year could be cut by nearly half - to 4 percent - if Europe, its biggest trading partner, suffers a sharp downturn due to its debt problems.

The World Bank warned earlier that a possible global slump might hit developing economies harder than the 2008 crisis did.


AP researcher Fu Ting in Shanghai contributed.



National Bureau of Statistics (in Chinese):