Chinese inflation dropped to its lowest in 30 months, to 1.8 per cent in July, following a rise of 2.2 per cent in June, opening up space for the government to stimulate the faltering economy.
The world’s second largest economy currently stands as the brightest spot on a bleak global map, amidst the Eurozone crisis and the struggles of the US economy. But China has had its share of troubles.
China’s economy grew at its slowest pace in three years in second quarter, prompting Wen Jiabao, the premier, to declare that the government’s priority was to support growth.
The central bank has cut its key interest rates twice since the start of June, taking the benchmark lending rate down to 6%. It has also cut the amount of money the country’s banks must keep in reserve, enabling them more money to lend to consumers and businesses.
It is anticipated that these measures will spur a recovery, and analysts are predicting stable conditions in the third quarter and a more remarkable upturn in the following one.
“This number gives more room for policy easing,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.
He added that the rate of inflation was “likely be below the official 4% per cent target for the year, so the policy focus for the government can stay clearly on growth”.
However, it is expected that Beijing will be much more cautious in their recovery plans, so as not to launch a similar stimulus to that of 2009, where the spending binge pushed inflation and caused a surge in local government debts.
