China’s Inflation Slows to 1%

China’s producer prices tumbled by the most in almost seven years and inflation cooled to the weakest pace since 2006 as the government struggled to revive growth in the world’s third-biggest economy., Bloomberg 2/10/2009 5:22:54 AM

Consumer prices rose 1 percent in January from a year earlier, the statistics bureau said today, after gaining 1.2 percent in December. Producer prices fell 3.3 percent after a 1.1 percent decline.

Lunar New Year celebrations last month may have prevented a bigger decline in the inflation rate as the economy slumped because of plummeting export demand. Central bank Governor Zhou Xiaochuan said today that China may use interest rates and foreign-exchange policy to cut the nation’s savings rate, boost consumption and sustain economic growth.

The global slowdown helped to trigger the drop in producer prices by prompting declines in costs of imports such as metals, the statistics bureau said in a statement.

China’s slumping exports and economic slowdown have cost the jobs of 20 million migrant workers and led to the closure of 4,000 toy factories last year.

Slowing inflation leaves more room for interest-rate cuts to increase domestic demand, as Zhou urges the nation to boost consumption to sustain growth.

Inflation was faster than the 0.8 percent median estimate of 15 economists surveyed by Bloomberg News. The slump in producer prices was steeper than the survey’s forecast of a 2.6 percent decline.

China’s economy expanded 9 percent in 2008 after a 13 percent gain in 2007 that pushed it past Germany to become the world’s third-biggest. In the fourth quarter of last year, growth cooled to 6.8 percent, the weakest pace since 2001, on the export decline and a slump in property.

China’s Inflation Slows to 1%