China’s Inflation Eases in January, Aiding Leadership Transition

By Moran Zhang: Subscribe to Moran's RSS feed

February 8, 2012 8:15 AM EST

Chinese inflation is expected to trend lower in January, providing room for Beijing to stimulate its economy if the Euro area experiences a sharp recession. However, economists do not expect aggressive stimulus packages to be put in place as Beijing aims for a smooth leadership transition this year.

Previous image Enlarge Close Next image

Share This Story

China's consumer price index, a main gauge of inflation, rose 4.1 percent in January compared to a year earlier, according to economists surveyed by Thomson Reuters. That is the lowest in almost a year and a half. The producer price index, which reflects inflation pressure at the wholesale level, is expected to have dropped to 0.8 percent, the lowest level since November 2009.

"The threat of inflation has receded somewhat," said Ravi Ramamurti, director of the Center for Emerging Markets at Northeastern University.

Despite the slowing of CPI in recent months to a 16-month low of 4.1 percent in January from the mid-2011 peak at 6.5 percent, it was still up 5.4 percent in 2011, well above the government's full-year inflation control target of four percent.

Must Read

Sponsorship Link

The National Bureau of Statistics of China is slated to release the CPI and the PPI at 8:30 p.m. Eastern Time on Wednesday.

Follow us

Breathing Room

"We expect the government to meet its (CPI) target this year," said Victoria Lai, an economist at the Economist Intelligence Unit.

Lai expects the effect of last year's tightening monetary policy to continue to push the CPI and PPI down in 2012 to an average of 3.6 percent and 2.2 percent, respectively.

"The decelerating trend in inflation will give policymakers a bit more space to make further adjustments in monetary policy," Lai said.

The latest Reuters poll showed economists expect China's central bank to cut banks' required reserves by two percentage points in 2012, or four cuts of 0.5 percentage points each.

Cooling the overheating economy has been the big story in 2011 for China, as it battled high inflation after jump-starting the economic recovery in 2008 with a four-trillion yuan ($634.5 billion) stimulus package.

"China's leaders are trying to figure out how fast the country can grow without taking inflation above 4 percent," Ramamurti added. "It will take trial and error to achieve the perfect balance."

2012: Leadership Transition

China's Vice President Xi Jinping is all but certain to take the reins of the ruling Communist Party from Hu Jintao in the fourth quarter and assume his title as state president in 2013. Wen Jiabao is due to be succeeded by Vice Premier Li Keqiang.

1 | 2 Next page | View all

This article is copyrighted by International Business Times, the business news leader