China’s inflation falls,giving room for stimulus

Beijing has responded to the slowdown by cutting interest rates twice since the start of June and pumping money.

Written by Agencies | Beijing | Published:August 9, 2012 10:48 am

China’s inflation fell further in July,giving the government more room to cut interest rates or take other steps to stimulate weak economic growth.

Politically sensitive consumer prices rose 1.8 percent,down from the previous month’s 2.2 percent and well below last year’s highs,data showed Thursday. That was driven by a 2.4 percent rise in food costs.

Lower inflation gives Beijing more room to cut interest rates or take other steps to shore up economic growth that has slowed sharply this year without the risk of igniting a new price spike.

The government tightened lending and investment curbs repeatedly in 2010-11 to cool overheating and surging inflation that peaked at 6.5 percent in July 2011. Chinese leaders reversed course late last year and eased some controls after global demand for Chinese goods plunged,causing growth to slow more sharply than expected.

Economic growth fell to a three-year low of 7.6 percent in the three months ending in June. Analysts say the slump probably has bottomed out and a recovery should begin in the second half. But Premier Wen Jiabao warned last month the economy still faces “relatively large” pressure to slow further.

Beijing has responded to the slowdown by cutting interest rates twice since the start of June and pumping money into the economy through high spending on building low-cost housing and other public works.

Authorities are moving more cautiously than they did in response to the 2008 global crisis after Beijing’s huge stimulus then triggered an inflation spike and a wasteful building boom.

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