China Inflation


China: Inflation touches a five-month low in October

November 9, 2011

In October, consumer prices rose 5.5% over the same month last year, which undershot the 6.1% increase in September but slightly exceeded market expectations of a 5.4% rise. The 0.6 percentage point decline in annual inflation represented the sharpest moderation since February 2009. The main drivers behind the October drop were lower price increases for food, which slowed to a 11.9% rise (September: +13.4% year-on-year). Core inflation, which strips out volatile food costs, slowed from 2.9% in September to 2.7% in October. Despite the moderation observed in the last two months, annual average inflation rose from 5.4% in September to 5.5% in October, which represented the highest level since December 2008. Meanwhile, producer price inflation dropped from 6.5% in September to 5.0% in October, which undershot market expectations of a 5.8% rise and represented the lowest rate in a year. Due to the sharp moderation in October, annual average producer price inflation remained at September's 6.7%. According to some analysts, inflation is on a downward trend, which may give policymakers room to loosen their fiscal and monetary stance. However, inflation still remains uncomfortably high and interest rate cuts are therefore not being considered. For 2011 the government set a full-year inflation target of 4.0%, which seems very unrealistic, as accumulated inflation stood at 5.6% in the first ten months.


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