China’s inflation rate drops to 20-month low
China’s annual inflation rate fell to a 20-month low in February, giving policymakers room to ease lending at a time of slowing economic growth.
“The inflation story is over, leaving [China’s central bank] with fewer excuses not to step up its easing efforts, especially given a sharp slowdown in exports so far this year,” said Qu Hongbin, co-head of Asian Economics Research for HSBC, in a note to clients Friday. “Get ready for more steps toward policy easing.”
Consumer prices rose 3.2% from February of last year, down from 4.5% annual growth in January, China’s National Bureau of Statistics said Friday.
The slowdown was led by food prices, which rose 6.2% in February compared with 10.5% in January.
The numbers were partly distorted by the Chinese New Year, when the cost of food tends to spike. The national holiday fell in January this year and February last year.
Still, the latest data eased pressure on the central government, which made tackling inflation one of its chief priorities last year.
A massive stimulus plan after the financial crisis of 2008 fueled giant asset and real estate bubbles in China, helping push inflation to a three-year high last summer.
Beijing has shown no willingness to stimulate its economy on that scale again, even though growth at home is projected to decline and the European debt crisis presents a high degree of uncertainty for the global economy.
On Monday, Chinese Premier Wen Jiabao lowered the country’s annual growth target for the first time in eight years, setting an expansion of 7.5% as a baseline.
The central government has also resisted calls to lift buying restrictions on the property market, which has experienced months of falling prices.
Instead, analysts expect Chinese policymakers to implement modest loosening measures such as lowering banks’ reserve ratios.
Whether this will be enough to ward off an economic hard landing will depend on deft policymaking, analysts say.
“There is a tricky balance to be played going forward,” Alistair Thornton, a Beijing-based analyst for IHS Global Insight, wrote in a research note. “The government craves the growth effects of further monetary easing, but does not want to stomach the inflationary implications.
“The unfortunate thing is, it’s becoming increasingly hard to have their cake and eat it.”
