China said on Monday consumer price inflation slowed to 1.8 percent in the year through April from 2.7 percent in March, the lowest rate in 20 months, easing fears about inflation amid rampant speculation on the yuan.
Easing inflation is seen as helpful to Beijing, which is under heightened foreign pressure to revalue the yuan.
A high base of comparison in 2004, a stabilization of food prices and companies' willingness to cut profit margins rather than lose market share are keeping a lid on consumer inflation despite rising wages and high prices for inputs such as oil, economists say.
"The number is pretty good, showing inflationary pressure is under control," said Zhuang Jian, economist at Asian Development Bank in Beijing. "Expectations of a rate rise will decline and the central bank will find it easier to cope with inflation."
"An increase in interest rates is looking less likely this year, but if investment rebounds sharply it's still possible."
Economists surveyed by Reuters had expected the National Bureau of Statistics to report an April consumer price index 2.6 percent higher than a year earlier. The published figure was in line with rumours circulating last week in China's financial markets, however.
Consumer price inflation in the year through April was the lowest since September 2003, when prices were 1.1 percent higher than a year earlier.
Analysts are on high alert for signs of quickening inflation because of foreign money coming into China as a bet on a yuan revaluation. To keep the yuan fixed near 8.28 per dollar,
Beijing has had to buy up those foreign funds, but doing so pumps up the money supply.
Economic theory dictates that this will feed eventually into higher prices.
But that has not yet happened, partly because the central bank has succeeded in mopping up the extra yuan it creates by selling bills. The challenge of controlling money supply is one of the main reasons why most economists advocate a stronger yuan.
The central bank has also tried to limit inflation by telling banks to curb loans to such hot sectors as property, steel and cement.
Consumer price inflation, which peaked at a seven-year high of 5.3 percent in the year through August, helped trigger the country's first interest rate rise in nearly a decade in October.
Some economists said they believed
Beijing might need to raise interest rates again because overall inflationary pressure, including housing prices and producer prices, remained strong.
"The slowdown was mainly due to falling grain prices, but I don't think it will slow further," said Zhu Jianfang, economist at China Securities in Beijing. "CPI inflation is likely to rebound from May and June because the government will probably take the opportunity to raise utility prices."
"I personally think the possibility of raising interest rates in the first half still exists," he said.
"Whether there will be an interest rate rise will not entirely depend on CPI, but also on housing prices and PPI."
But analysts are still divided on when and how high producer price inflation will filter through to consumer inflation, as most Chinese producers of consumer products are trying to cope with rising raw material costs by improving efficiency, rather than raising ex-factory prices in the face of fierce competition.
Producer price inflation accelerated to a higher-than-expected 5.8 percent in the year through April from 5.6 percent a month earlier, the government said last week.
