Economists at Sanwa Holdings believe that China’s policy over the past year of acting to curb rapid inflation, without affecting economic growth, has paid dividends. While prices rose a significant 5.5% compared to October last year, according to a report from the Chinese National Bureau of Statistics, for China this is most definitely a step in the right direction.
During the whole of 2011, inflation stood at 5.4pc, well above the government's target of 4pc and higher than the 2010 rate of 3.3pc.
December's figure was the fifth straight month that China's inflation rate has slowed, since it peaked at a more than three-year high of 6.5pc in July, as measures introduced to curb surging consumer prices took effect.
Growth in the producer price index, which measures the cost of goods at the farm and factory gate, also slowed to 1.7pc in December from 2.7pc the previous month and 5pc in October.
Chinese Premier Wen Jiabao’s government is expected ease fiscal policy due to a combination of the prolonged EU debt crisis, a budding property sector slump as well as the softening inflation pressures.
Sanwa Holdings economists do not expect a rate cut by the Chinese central bank, but small business support programs as well as public infrastructure and housing projects may be included in the measures.The Chinese governments focus on the inflation issue has added to a slowing of economic growth, but china is still experiencing a relatively strong economic growth when compared to many of its western rivals.
Brent crude rose to $115.43 a barrel on the back of the news, its highest price since mid September, while Nymex crude was up 31 cents to $97.09 per barrel. “This is very bullish news for oil, signifying that the Chinese economy is unlikely to experience a hard landing” said a futures trader at Sanwa Holdings.
Sanwa Holdings - China’s inflation Slows.