China brings inflation under control, for now

In 2012, China succeeded in driving inflation below the government target of 4 percent. But as the world's second-largest economy recovers from a year of slowing growth, rising prices are back on the political agenda. China's consumer price index (CPI) rose 2.6 percent in 2012, down from 5.4 percent the year before, the National Bureau of Statistics (NBS) announced Friday. The annual inflation figure was below the government's target of 4 percent, indicating that Beijing's efforts to rein in inflation were successful. In addition, inflationary pressures were dampened by a marked slowdown in China's economic expansion in the first nine months of the year, in which the GDP grew by only 7.4 percent - the slowest rate in over three years. However, inflation picked up again at the end of 2012, the NBS said, as consumer prices rose from 1.7 percent in October and 2 percent in November to 2.5 percent in December. NBS attributed the increase to rising food prices, especially for vegetables, as a result of an unusually harsh winter. Analysts said that rebounding inflation was also a sign that economic expansion in China was accelerating. The government cut interest rates twice last year in a bid to encourage bank lending and to spur the economy. However, rising food prices are narrowing the scope for the Chinese central bank to further boost the economy by easing monetary policy. As a result, Asian shares fell on Friday after positive Chinese trade figures, released Thursday, had propelled stock prices to an eight-month high.