China inflation slows to 1%, producer prices tumble

China's producer prices tumbled by the most in almost seven years and inflation cooled to the weakest pace since 2006 as the government struggled to revive growth in the world's third-biggest economy. Consumer prices rose 1% in January from a year earlier, the statistics bureau said on Tuesday, after gaining 1.2 % in December. Producer prices fell 3.3 % after a 1.1% decline.

Lunar New Year celebrations last month may have prevented a bigger decline in the inflation rate as the economy slumped because of plummeting export demand. Central bank Governor Zhou Xiaochuan said today that China may use interest rates and foreign-exchange policy to cut the nation's savings rate, boost consumption and sustain economic growth.

"Inflation could have been close to zero or worse if not for the Chinese New Year, because vegetable prices and grain prices went up," said Wang Tao, China economist at UBS AG in Beijing. Government bonds climbed, spurring speculation that the central bank may cut interest rates for the sixth time since September. The yuan rose to 6.8330 against the dollar as of 11:42 a.m. in Shanghai, from 6.8338 yesterday.

The global slowdown helped to trigger the fall in producer prices by prompting declines in costs of imports such as metals, the statistics bureau said in a statement. McDonald's Corp., the world's biggest restaurant chain, said it cut prices in China last week to keep meals "affordable," after the nation's fourth-quarter economic growth was the slowest in seven years.