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China's annual rate of inflation fell to 1.3% in August, the lowest rate in nearly two years and down sharply from a peak of 5.3% in August 2004.

Although some observers had expected a rebound in inflation as a result of high international prices for oil and raw materials, Chinese consumers have been protected from this inflationary pressure by two factors, namely, overcapacity in many sectors e.g. clothing, cars and consumer products, and government caps on fuel prices and utilities tariffs.

Economic Research Unit
Franklin + Andrews

eru@franklinandrews.com