China inflation cools to 4.2%

China’s inflation cooled to the slowest pace in 14 months in November, giving policy makers more room to loosen policies as export growth slows because of Europe’s debt crisis.

Consumer prices rose 4.2 percent from a year earlier, the statistics bureau said on its website. That was lower than all estimates in a Bloomberg News survey of 35 economists that had a median forecast of 4.5 percent. Producer prices gained 2.7 percent, the smallest increase in 23 months.

The fourth month of slowing inflation may prompt Premier Wen Jiabao to tilt policies more toward growth as Europe’s crisis bites and government property curbs damp home sales. China may cut the benchmark lending rate next quarter when economic growth reaches a “trough,” according to Nomura Holdings Inc.

“China may front-load policy easing, including a rate cut and more reductions in banks’ reserve requirements in the next quarter when economic growth falls to its weakest level,” Zhang Zhiwei, a Hong Kong-based economist at Nomura, said before the data release. Expansion of gross domestic product may slow to 7.5 percent in the January-March period from an estimated pace of 8.6 percent this quarter, according to Zhang.

China’s benchmark Shanghai Composite Index has fallen 17 percent this year, exceeding last year’s 14 percent decline, on concern growth in the world’s second-largest economy will falter, damping company earnings and boosting banks’ bad debts. Industrial output, retail sales and investment data for November will also be released today.

Consumer prices gained 5.5 percent in October from a year earlier.

Inflation may be about 4 percent by the end of this year and average a similar level for 2012, Zheng Jingping, the statistics bureau’s chief engineer wrote this week.

Consumer- price gains reached a three-year high of 6.5 percent in July and have exceeded the government’s 2011 target of 4 percent every month this year.

The People’s Bank of China cut the amount of cash lenders must set aside as reserves for the first time in three years, effective Dec. 5, adding cash to the financial system to support growth.

An official manufacturing index contracted for the first time since February 2009 as export orders and new orders slumped, adding to evidence that growth is ebbing.

Statistics bureau data show nationwide housing transactions declined 25 percent by value in October from the previous month. China Vanke Co., the nation’s biggest listed property developer, said this week its November sales fell 36 percent by value from a year earlier after dropping a third in October.

Policy makers will hold an annual economic work conference this month to map out the direction of policies for next year. The meeting will set a “stable” overall economic policy stance, the Economic Observer newspaper reported yesterday.

“The policy wind is going to increasingly blow in the direction of easing,” Yao Wei, a Hong Kong-based economist at Societe Generale SA, wrote this week. Officials may decide at the meeting that “stabilizing growth” will replace “stabilizing prices” as the policy priority, she said.

Nomura this week cut its 2012 growth forecast to 7.9 percent from 8.6 percent as home sales slide and Europe, the nation’s biggest export market, faces the risk of a recession. Banks including UBS AG, Citigroup Inc. and Morgan Stanley have also reduced their estimates.

China’s expansion slowed to 9.1 percent in the third quarter, the least in two years, after the government raised interest rates, tightened credit and expanded property-market curbs.

(Bloomberg)