China's Inflation Slows in October

China's consumer inflation waned further last month brought down by lower food prices, adding, economists said, to signs of slack demand and continued slowing in the world's second-largest economy.

China's consumer-price index rose 1.3% in October last month from a year earlier, according to the government's statistics bureau. The pace was slower than the 1.6% year-over-year rise in September and a tick down from the median 1.4% gain forecast by 11 economists in a survey by The Wall Street Journal. Prices of goods at the factory gate fell 5.9% in October from a year earlier, matching September's decline.

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Overall, economists said, the lack of price pressure, while good for some consumers, means businesses are working harder to sell more to make profits and pay debts--a difficult phase for an economy that is struggling to meet the government's annual growth target of 7%. .

"It's quite clear, China is facing deflationary pressure," said Mizuho Securities Asia Ltd. economist Shen Jianguang. "The issue is how to revive growth that's been below target, while restructuring the economy to reduce overcapacity."

Lower price pressure should give the central bank leeway to continue its easing policy, which has so far failed to spur a pickup in growth despite six interest rate cuts and other measures to spur lending and borrowing. Economists expect the central bank to further reduce the amount banks are required to hold in reserve before the year's end, but said that Beijing will increasingly shift to more government spending.

"China sees the constraints of monetary policy and will let fiscal policy take the driver's seat," said Commerzbank AG economist Zhou Hao.

Prices for pork, a staple and a significant part of food inflation, rose less rapidly in October than in prior months, according to the statistics bureau. Warmer weather also helped moderate vegetable prices, said Yan Ling, an economist with China Merchants Securities. Those lower food prices, combined with subdued commodity prices and a relatively strong currency--which reduces the price of imported goods in yuan terms--contributed to the month's slower growth in consumer prices, economists said.

Lu Guiqing, a 55-year old retired salesperson from a state-owned company, said that he  noticed that vegetable prices aren't rising so quickly and that cooking oil prices have declined. He said he is buying more clothes and appliances online at lower prices than at bricks-and-mortar stores.

"Though people may want to raise price, they probably can't," Mr. Lu said, dressed in a green jacket as he peeled a pear. "And even though the price of soybean oil has fallen, I'm using less of it since I'm trying to eat healthy."

According to price tracker Premise Data Corp., the cost of a basket of food staples in China rose 1.15% over the past month, led by seafood, fruit and processed meat.

Monthly producer prices at the factory gate have declined for 44 consecutive months as manufacturers battle weak demand and the excess production capacity built up at a time when China was growing at double-digits rates, forcing them to reduce prices.

Some economists said producer inflation is showing some sign of stabilization. Much of the deflationary pressure comes from falling global oil and metal prices, and in the months ahead that impact on price indexes should fade, said Société Générale CIB in a research note. "Combined with some stabilization in commodity prices, this should offer some reassurance that the deflationary drag from China is not deepening and may even be easing somewhat," it added.

--Grace Zhu

Write to Mark Magnier at