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China's October Inflation Eases to 4%

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China's inflation rate fell further in October, easing pressure on Beijing to contain price rises as it launches a massive stimulus package to boost slowing growth.

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CNBC.com
China, Chinese Flag

Consumer prices rose by 4 percent in October from a year earlier following a marathon government effort to cool sharp rises in politically-sensitive food prices, according to a government report Tuesday. That was down from September's 4.3 percent rate and a sharp decline from February's 12-year high of 8.7 percent.

The decline reduces the danger of a new inflation spike as Beijing pours money into the economy with a 4 trillion yuan ($586 billion) package, announced Sunday, to boost growth and shield China from the global slowdown.

"The downtrend in inflation has allowed the government to take more aggressive monetary and fiscal action without stoking consumer prices," said Jing Ulrich, JP Morgan & Co.'s chairwoman for China equities, in a report to clients.

October inflation was driven by an 8.5 percent rise in food costs, which make up one-third of China's consumer price index. That was down from February's high of 23.3 percent.

"Inflation should continue to trend downward as food prices ... remain stable and supplier pricing power in industries ranging from autos to appliances continues to weaken as the economy slows," Ulrich said.

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Inflation surged in mid-2007 due to shortages of pork, grain and other basic food items.

That alarmed the government, which worried about possible unrest among China's poor majority, who have missed out on the country's economic boom. Beijing scrambled to raise farm output by boosting aid to farmers and cutting taxes on food imports.

Official attention has now shifted to waning economic growth as global demand for Chinese exports weakens.

The stimulus package calls for higher spending on construction of airports and other projects -- a step Beijing might have been reluctant to take earlier for fear that pumping money into the economy would ignite new price rises.