Chinese Inflation Slowed: Factors Bringing the Rate Down

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China’s inflation rate as measured by the Consumer Price Index for 2013 was 2.6 percent, below the government’s 3.5 percent target, suggesting domestic demand may be falling short of expectations. The data were released by China’s National Bureau of Statistics, which also reported that December’s inflation rate edged down to 2.5 percent from 3 percent in November.

In both rural areas and cities, the CPI was 2.5 percent in December. Year-on-year food prices increased by 4.1 percent, up 0.6 percent from November. Housing grew by 2.8 percent, with rental prices up 4.7 percent. The cost for education services was 2.8 percent higher from where it stood a year ago. Measures of transportation and communication, as well as tobacco and liquor, declined on yearly basis.

Louis Kuijs, an economist with RBS, explained to the Financial Times that what was witnessed in regards to food prices — a more modest increase compared to previous years — was an anomaly. “If we run the numbers, the behavior of food prices in December was very different from what we usually see,” Kuijs said to the publication. “The austerity campaign is constraining demand and this must be having an impact. And many businesses have not yet fully adjusted, so there could be additional downward pressure as they catch up to the new reality.”

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