Focus Shifts to Economic Growth as China’s Inflation Rate Eases

During her visit to China this week, managing director of the International Monetary Fund Christine Lagarde, commended the country for developing domestic demand in its current economic growth model. She also noted that the latest economic data confirms that China’s inflation is easing, saying that the country’s policy is moving back to balance. Lagarde was speaking at a forum held in the city of Beijing where she also touched on the global economy, which she referred to as entering a dangerous and uncertain phase, calling for advanced economies to speed up structural reforms in order to create job opportunities and regain competitiveness. Problems with some Eurozone countries, most notably Greece and Italy, and ongoing economic problems in the United States, continue to impact global markets.

Consumer inflation in China declined from 6.1 percent in September, to 5.5 percent in October, allowing Beijing some room to boost its economy, which is currently viewed as the second largest in the world. The lower inflation rate offers China’s leaders the opportunity to reverse interest rate hikes and other measures put in place with the goal of cooling the economy which grew by as much as 9.1 percent in the last quarter. Analysts have noted that curbing inflation had been a priority for some time now, and with some progress in meeting that goal, authorities are likely to focus on economic growth, which is facing the challenge of decreased demand from European and United States export markets, along with an embattled real estate market. Export orders placed by Western buyers at the recent Canton Fair dropped by between 20 and 25 percent, reaffirming the trend of decreased export demand.

The drop in the inflation figure has been attributed primarily to the slow-down in the increase of food prices – a situation welcomed by Chinese consumers, many of whom spend up to half of their income on food. Food costs in September rose by 13.4 percent, with October registering an increase of 11.9 percent. As China’s autumn harvest starts, it is anticipated that inflation will further ease. Wholesale inflation fell from 6.5 percent in September, to 5 percent in October. Premier Wen Jiabao recently reiterated that there will be no easing of the property-tightening moves as authorities pursue the target of returning real estate prices to normal.