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January’s Inflation Rate Slows to 1 Percent

By Expert Author: Chris Devonshire-Ellis | Article Abstract
Word Count: 260 words | Views: 77 view(s)
China’s Statistics Bureau announced that inflation rate for January slowed to 1 percent, the slowest pace in more than two years while producer prices dropped by 3.3 percent.

Last year, China’s CPI for December increased by 1.2 percent. The slowing inflation rate gives policymakers more reason to implement interest-rate cuts to revive domestic demand and exports.

The situation has not been confined to China as lower commodity prices and weaker demand around Asia are placing governments on high alert for the threat of deflation.

“This puts more pressure on the central bank to cut interest rates further,” Peng Wensheng, head of China research at Barclays Capital in Hong Kong told Bloomberg. “In the short term, the downward pressure is on prices.”

Deflation occurs when there is a constant decrease in the price level of goods and services and when inflation reaches below zero percent. This leads to an increase in the real value of money and a negative inflation rate.

Episodes of deflation are considered problematic because it can lead to a deflationary spiral seen during the Great Depression.

Moreover, there is a tendency for currencies to weaken when inflation slows and interest rates drop. When this collectively happens, regional currencies will suffer and decrease even more.

The threat of deflation, “is not just an Asian problem, but a global one and must be addressed wherever possible by appropriate policy responses,” Patrick Bennett, Asian foreign-exchange and rate strategist for Société Générale told WSJ. “The fiscal and monetary policy ammunition available to Asia should be ample, but needs to be delivered in a timely fashion — i.e., now.”
Chris Devonshire-Ellis

About the Author/Author Bio

This article was written by Chris Devonshire-Ellis for China Briefing, an online magazine which publishes China Business Newsand is one of the premium English language publishing businesses in China today.

Dezan Shira and Associates provide a range of services for companies looking to undertake foreign direct investment into China. These include China legal, Chinese accounting , tax and due diligence services. These services are also provided in Hong Kong, Vietnam and India.

Article Source: http://www.articlesphere.com/Article/January-rsquo-s-Inflation-Rate-Slows-to-1-Percent/177253

Article Submitted: 2009-02-11 | This Article has been viewed 77 times.

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