China says November inflation slows to 4.2pc

BEIJING: China's consumer prices rose at their slowest pace in over a year in November, data showed Friday, vindicating Beijing's decision to relax credit restrictions to prevent a painful economic slowdown.

The country's consumer price index, a key gauge of inflation, rose 4.2 percent year-on-year in November, the National Bureau of Statistics said in a statement.

The rate was well below the 5.5 percent recorded in October, but still slightly above the government's annual target of four percent.

It was the slowest pace since September 2010, when inflation stood at 3.6 percent, and below analyst expectations for 4.4 percent.

The producer price index, which measures the cost of goods at the farm and factory gate, rose 2.7 percent year on year, the data showed.

Analysts expect the government to further open credit valves in the coming months to spur economic activity and avoid a sharp slowdown.

"Inflation is marching south at an aggressive pace, with the producer price inflation virtually collapsing," said Alistair Thornton, an analyst at IHS Global Insight.

But Thornton warned that the figure was distorted by a spike in inflation in November 2010, meaning it was "too early for China to claim complete victory over inflation".

China last week cut the amount of money banks must hold in reserve for the first time in three years to spur lending and counter the turmoil in Europe and the United States that threatens to derail the world's second-largest economy.

Export-driven China has seen demand for its products shrink in recent months as consumers from Paris to New York cut back on spending due to the increasingly bleak economic outlook.

Manufacturing activity in China contracted in November for the first time in 33 months, official data showed last week, fuelling concerns the economy was at risk of a hard landing which could trigger massive job losses.

Until recently, policymakers have been reluctant to relax tight credit restrictions implemented in the past two years for fear of reigniting inflation, which peaked at a more than three-year high of 6.5 percent in July.

But analysts said last week's surprise move to cut the banks' reserve requirement ratio, which effectively increases the amount of money they can lend, showed Beijing was now more worried about economic growth.

Vice Premier Wang Qishan, China's top finance official, last month issued a dire warning that the global recession was here to stay and would impact the export-dependent economy due to weakening external demand.

China's economy is expected to grow 8.9 percent next year, which would be the slowest pace in more than a decade, a state-run think tank said this week.

That compares with an expected growth rate of 9.2 percent this year and follows the blistering 10.4 percent recorded in 2010, Chinese Academy of Social Sciences said.