Falling inflation gives China more room to spur growth

China's inflation retreated further in July, giving the government more room to stimulate growth as signals continued to be mixed about whether the world's second-largest economy was recovering from a painful slowdown.

Politically sensitive consumer prices were up 1.8 per cent, down from the previous month's 2.2 per cent and well below last year's highs, according to data released today. The data was driven by a 2.4 per cent rise in food costs.

With lower inflation, Beijing gets more room to cut interest rates or take other measures to spur economic growth that had slowed sharply this year without the risk of igniting a new price spike.

The numbers confirmed that the door for monetary easing was open, Credit Agricole economist Dariusz Kolwaczyk said in a report.

Beijing tightened economic controls in 2010-11, in a bid to cool overheating, and with inflation at the peak 6.5 per cent in July 2011. China reversed course late last year, with lenders easing some controls after a fall in global demand for Chinese goods, which caused the economy to slow abruptly.

Growth was down to a three-year low of 7.6 per cent in the three months ended 20 June, and according to analysts, the slump probably had bottomed out and a recovery should begin in the second half. However, premier Wen Jiabao warned last month the economy still faced ``relatively large'' pressure to slow further.