Inflation in China Falls to Lowest Rate in Year and A Half

Consumer inflation in the world’s second largest economy decelerated to a low of 18 months in April, in China. At the same time, a decline in prices at the factory-gate continued giving the Chinese government more reason to loosen its policies if a slowdown in growth continues in the largest Asia economy.

The index for consumer prices was up 1.8% for April from last year during the same month. China’s National Bureau of Statistics announced the figures on Friday. That figure was below the estimate of economists who estimated 2.1% and below the 2.4% experienced in March.

Falling prices of pork and vegetables were two main reasons for the soft reading during April.

The producer price index was down 2% for the 26th consecutive decline, following a drop of 2.3% in March, said the NBS.

That compared to an estimate by economists of a fall of 1.9% and extended the longest period of declines since 1997 when it fell 31 straight months.

The data on inflation adds to other signs that domestic demand is muted, with commodity prices falling making overcapacity in industry including cement and steel.

The lack of any inflationary pressure gives the Central Bank in China the ability to relax its monetary policy in an attempt to support the economy, if the 7.5% growth target for the full year becomes threatened.

China authorities still believe the 7.5% rate of growth is attainable, but forecasters believe it will fall short at 7.3%, which would make it the slowest growth in more than 24 years.

A chief economist on China with a bank in Hong Kong said there is a downward pressure on prices of property and the overall inflation.

If the prices of real estate continue to fall during the second six months of 2014, there could be room for even more easing, including lowering the ratios for reserve requirement for banks.

Inflation has stayed at least 1% below the full year target for the government of 3.5% each month in 2014. Prices of food were up 2.3% last month from the same month one year ago.

Non-food inflation rose 1.6% compared to a pace of 1.5% for March.

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