BBC News - Chinese inflation eases to 2.2% in June

Inflation has eased sharply in China, giving policymakers more room to spur economic growth amidst a global slowdown.

The BBC's John Sudworth in Shanghai explains why inflation is coming down and why it's both good and bad news

Consumer price rises cooled in June to 2.2% compared to the previous year, China's statistics bureau said.

That is down from 3% in May and is well below the government target of 4%.

China has taken steps to bolster growth as the global economic crisis weighs on demand for its goods.

Analysts said lower food prices was the main driver of the slowing inflation.

Pork prices, one of the biggest contributors to skyrocketing inflation last year, fell 12.2% from 2011.

Growth steps

China's central bank has cut key interest rates twice since the start of June, with benchmark lending rates down to 6%.

It has also cut the amount of money banks must keep in reserve in an effort to boost lending.

Analysts said they expected more such moves to boost growth from the government going forward.

"A lower consumer price index opens room for further policy easing, which we expect will pick up," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

Economic 'fine tuning'

That sentiment was echoed over the weekend by Chinese Premier Wen Jiabao, who said more aggressive efforts were needed to support growth, according to the official Xinhua news agency.

"China's current economic situation is generally stable, but it still faces relatively huge downward pressure," Mr Wen said while on a trip to the eastern province of Jiangsu.

"We should increase the strength of policy fine-tuning," he added. Fine tuning is an often-used term by Chinese policy makers to indicate that policy moves will be gradual.

The Chinese economy grew at 8.1% in the first three months of this year compared to the previous year, its slowest pace in almost three years.

The easing of food prices, especially pork, is the main contributing factor to slowing inflation