Chinese inflation hits 7-month low in December

Chinese inflation fell to its lowest level in seven months in December, catching analysts off-guard and easing fears a new squeeze in monetary policy in the world’s second-largest economy.

The annual rate of price increases fell to 2.5 per cent, driven down from 3 per cent in November by a decline in food costs. Some analysts said the Beijing government’s curb on officials’ lavish banquets had played a part.

“Inflation pressures remain modest, which will allow policymakers to continue focusing on policies to support growth while implementing structural reform measures in 2014,” said Xiaoping Ma of HSBC in Beijing.

The Chinese government is attempting to rein in its large shadow-banking sector and constrain the expansion of credit, which has driven GDP growth in China since the global financial crisis of 2008. Total debt in the economy has risen to around 200 per cent of GDP, up from 120 per cent just six year ago.

Beijing has an official target for inflation of 3.5 per cent. The average annual increase last year was 2.6 per cent.