China’s inflation slowed by the most in almost three years, giving officials more room to support growth as industrial production and the property market cool and Europe’s crisis threatens exports.

Consumer prices rose 5.5 percent in October from a year earlier, the statistics bureau said on its website today. The 0.6 percentage point decline from September’s rate was the biggest since February 2009. Industrial output growth slowed to 13.2 percent.

Most economists expect Premier Wen Jiabao’s government to loosen fiscal or monetary policy without cutting interest rates as inflation stays above a full-year target of 4 percent, a Bloomberg News survey showed this week. HSBC Holdings Plc said today that “targeted easing” may include measures to support smaller businesses and the construction of public housing and infrastructure.

“The combination of easing inflationary pressures, a protracted euro debt crisis and a potential property market slump has set the scene for an imminent policy easing,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd. “The time is right” for a cut in lenders’ reserve requirements, he said.

Industrial output growth was the least in a year and compared with a 13.8 percent gain in September, Bloomberg data show. Economists’ median estimate was for a 13.4 percent gain.

Housing transactions fell 25 percent from September, today’s data showed, with Credit Suisse Group AG analyst Jinsong Du saying that “sluggish” volumes are a risk for developers.
Producer Prices Moderate

China’s inflation may moderate further as raw-material costs decline, reflecting headwinds to the global recovery from faltering U.S. growth and the prospect of a recession in Europe. Producer prices rose 5 percent, less than any of 24 analyst forecast and the smallest increase in a year, today’s data showed.
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