China’s inflation rate declines in November

China’s inflation rate fell further in November as the rise in food prices moderated, giving Chinese leaders room if needed to pump more stimulus into the slowing economy.
Government data yesterday showed consumer prices rose 1.4 percent over a year earlier, down from October’s already low 1.6 percent increase. Food prices rose 2.3 percent, down from October’s 2.5 percent.
Producer prices, measured as goods leave the factory, also fell further, declining 2.7 percent from a year earlier.
Low inflation gives Beijing room to cut interest rates or launch new stimulus spending with less concern about setting off a price spike.
Falling oil and metals prices have cut costs for China’s factories, leading to lower export prices and adding to dis-inflation threats across the world. The rising risk of deflation drives up real borrowing costs, making it harder for China’s indebted companies to service debts and increasing pressure on the central bank to follow up last month’s surprise interest-rate cut with further monetary easing.
“China has entered into a rapid dis-inflation process, and faces the risk of deflation,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “As the PBOC has exhausted its newly invented and ineffective policy tools, we believe the next move will have to be a RRR cut in order to regain policy effectiveness and credibility.”
Economic growth fell to a five-year low of 7.3 percent in the latest quarter. Beijing cut interest rates Nov. 22 in an apparent move to stop the deepening downturn. AP/Bloomberg