Chinese inflation threat abates as focus turns to growth

Inflation in China has fallen sharply, dropping to 5.5% annually in October from 6.1% in September, raising hopes that inflation peaked in the summer and giving the authorities more room to act in the face of a continued economic slowdown.

The inflation figures, published by the National Bureau of Statistics, came alongside a flurry of data that economists said raised the prospects of a modest slowdown for the world's second largest economy, rather than the dreaded 'hard landing' scenario.

The Chinese authorities are now increasingly expected to shift their focus to keeping the economy on track, amid the slowdown faced by China's trading partners in Europe and elsewhere.

Industrial production figures showed a continued decline, slowing to 13.2% in October from 13.8% the previous month, and marking the slowest pace in 20 months. Retail sales growth dropped to 17.2% from 17.7%. However, these were 'quite resilient and robust' said Lu Ting of Bank of America Merrill Lynch, echoing the sentiments of other economists.

Brian Jackson of RBC Capital Markets said: 'Today's activity data also provide further evidence that Chinese growth is moderating at a gradual rather than a sharp pace, in line with our forecasts.'

The figures on China’s economy came as Christine Lagarde, the chief of the International Monetary Fund, warned of the ‘difficult balancing act’ Asian policymakers were facing.

‘Asia is not immune … from developments in the rest of the world. The trade channel is critical, as the region still relies a lot on external demand to propel growth. Emerging Asia is also vulnerable to developments in the financial sector,’ Lagarde said in speech in Beijing today.

China’s rising inflation – and how the authorities respond to it – has been described as the biggest threat to the global economy, potentially outweighing the eurozone’s crisis.

But having risen to worrying levels, and though it remains uncomfortably high for the authorities, consumer price index inflation appears to have peaked at 6.5% in July. Factory-gate PPI inflation recorded an even sharper fall to 5% in October, down from 6.5% in September, the lowest level in a year.

The latest fall in consumer price inflation reflects easing food prices and the rapid increase in prices in the last quarter of 2010, which provides a favourable base for comparison.