China's inflation rate falls as food prices rises slow

John Sudworth reports from Shanghai, where slowing inflation and industrial production are likely to lead to more stimulus measures.

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China's inflation rate has fallen to a 20-month low as food price rises eased, giving policy-makers room to stimulate the economy.

Inflation was 3.2% in February, down from 4.5% the previous month, the National Bureau of Statistics said. That is the lowest since July 2010.

Premier Wen Jiabao on Monday set China's 2012 inflation target at 4%.

China's economy has been sluggish in recent months as weak demand from Europe has weighed on exports.

Sudden spike

Rising prices had been easing steadily from a three-year high of 6.5% in July, but then rebounded in January, sparking fears that price pressures remained.

However, analysts said inflation readings in the first two months of the year were often skewed because of the lunar new year holidays.

Consumers tend to spend more heavily ahead of the holiday period before cutting back after the new year. This means that retailers tend to discount goods after the new year in an attempt to stoke demand.

"The latest consumer price index number is mainly because of the dissipation of the Chinese New Year effect," said Kevin Lai from Daiwa in Hong Kong.

"Prices came down after the holiday, especially food prices."

Pork prices, often the biggest contributor pushing up food prices, rose 15.9% in February, compared with a 25% rise in January.

Fruit prices were down 6.1% compared with a 2.3% increase in January.

Spurring growth

An easing inflation rate allows the Chinese government to stimulate growth without worrying as much about fuelling price rises, an issue that has led to public unrest in the past.

Lady buying vegetables at a market Food prices have been one of the biggest drivers of inflation in past months

China and other developing countries have been warned by the International Monetary Fund (IMF) as well as The World Bank to prepare for the effects of a possible global slowdown this year.

Last month, the IMF predicted that China's growth in 2012 could be cut by nearly half to 4% by a European downturn caused by the debt crisis.

Chinese gross domestic product slowed to annual rate of 8.9% in the last three months of 2011, which was a two-and-a-half year low.

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