Consumer prices drop to 17-month low

CONSUMER prices in October dropped to a 17-month low of 4 percent, continuing a downward trend that gives policy makers more room to stimulate economic growth.

The Consumer Price Index, the main gauge of inflation, grew 4 percent last month from a year earlier, the National Bureau of Statistics said today.

It was the seventh straight month that CPI growth slowed and compared with September's 4.6 percent. Last month's CPI was the lowest since June 2007.

The slowing CPI, as well as a moderating 6.6-percent Producer Price Index, which measures factory-gate inflation, indicated inflationary pressure was easing, which allows policy makers to use more aggressive measures to whip up the domestic economy, analysts said.

The CPI grew 6.7 percent in the first 10 months from a year ago.

Food prices rose 8.5 percent in October while the non-food sector increased 1.6 percent last month on year.

"The CPI moved in line with our expectations, but we can't deny there has been a sharp drop since the index stood at a 12-year high of 8.7 percent in February," said Li Maoyu, an analyst with Changjiang Securities Co.

"It demonstrates effective macroeconomic control. Now the policy makers have room to carry out growth-supporting measurements amid the deepening global economic downturn."

China announced a 4-trillion-yuan (US$586 billion) stimulus package on Sunday to boost domestic demand as the global economy sours.

Peng Ken, an economist with Citigroup, said falling inflation will give policy makers a free hand to support growth and he expects at least one more rate cut before the year end.

"The fiscal package announced over the weekend may patch growth in the next two years, but easing monetary policy is still necessary to complement the fiscal expansion," said Peng.

Gross domestic product, although growing the fastest among emerging markets, slowed to a five-year low of 9 percent in the third quarter.