China's Slowing Inflation Reflects Slowing Economy

The main import of China’s consumer price inflation figure for June–up 2.2% on the same month a year earlier, it’s smallest monthly increase in 29 months–is that it affords plenty of headroom for further stimulus measures if required. Though a fall in food prices is the main reason that the headline number came down, non-food inflation held steady. That suggests a lack of demand that will be reflected in the second quarter GDP number to be released next week. Prime Minister Wen Jiabao called over the weekend for further stimulative tweaking of the economy via infrastructure spending. The dark lining to that silver cloud is that that it won’t do much for rebalancing.

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