China inflation hits 20-month low as food prices ease

China's inflation fell sharply in February, giving Beijing more leeway to stimulate its slowing economy.

Last Updated: Mar 09, 2012, 08:48 AM IST

Beijing: China's inflation fell sharply in February, giving Beijing more leeway to stimulate its slowing economy.

Consumer price inflation fell to 3.2 percent from January's 4.5 percent, the government reported. Inflation in politically sensitive food costs declined even more markedly, falling to 6.2 percent from the previous month's 10.5 percent.

The inflation 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.

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 a 37-month peak of 6.5 percent but rebounded in January, sparking concern pressure for prices to rise had not been extinguished.

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 after a plunge in global demand battered exporters but 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.

The IMF warned last month that China's projected growth this year could be cut by nearly half this year 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.

Bureau Report