Consumer prices rose 4.2 percent from a year earlier, the statistics bureau said on its website. That was lower than all estimates in a Bloomberg News survey of 35 economists that had a median forecast of 4.5 percent. Producer prices gained 2.7 percent, the least in almost two years.

The fourth month of slowing inflation may prompt Premier Wen Jiabao to further tilt policies toward growth after a cut in banks’ reserve requirements took effect Dec. 5. Nomura Holdings Inc. says interest rates may fall in the first quarter as growth reaches a “trough.” Officials are currently preparing for a meeting that will set the economic policy framework for 2012.

“This lower CPI reading will allow the authorities to loosen policy more quickly,” said Stephen Green, a Hong Kong- based economist for Standard Chartered Plc., adding that the central bank is likely to keep reducing reserve requirements.

In October, inflation was 5.5 percent.

The Shanghai Composite Index fell 0.4 percent as of 10:33 a.m. local time after the European Central Bank yesterday damped speculation it will buy more government bonds.

More Data Pending

The Shanghai stock index (SHCOMP), China’s benchmark, has fallen 17 percent this year on concern growth in the world’s second- largest economy will falter, damping company earnings and boosting banks’ bad debts. Industrial output, retail sales and investment data for November will also be released today.

The nation’s property market is cooling after a government crackdown on speculation. Nomura estimates economic growth may slow to 7.5 percent in the January-March period, the least since the global financial crisis, from an estimated 8.6 percent this quarter.

Food prices climbed 8.8 percent in November from a year earlier, less than the 11.9 percent gain in October, today’s report showed.

Inflation may average about 4 percent in 2012, Zheng Jingping, the statistics bureau’s chief engineer wrote this week. Consumer-price gains reached a three-year high of 6.5 percent in July and have exceeded the government’s 2011 target of 4 percent every month this year.

Manufacturing Contracts

The People’s Bank of China cut the amount of cash lenders must set aside as reserves for the first time in three years this month, adding cash to the financial system to support growth. An official manufacturing index contracted for the first time since February 2009 as export orders and new orders slumped, adding to evidence that growth is ebbing.

Statistics bureau data show nationwide housing transactions declined 25 percent by value in October from the previous month. China Vanke Co. (000002), the nation’s biggest listed property developer, said this week its November sales fell 36 percent by value from a year earlier after dropping a third in October.

Policy makers will hold an annual economic work conference this month to map out the direction of policies for next year. The meeting will set a “stable” economic policy stance, the Economic Observer newspaper reported yesterday.

“The policy wind is going to increasingly blow in the direction of easing,” Yao Wei, a Hong Kong-based economist at Societe Generale SA, wrote this week. Officials may decide at the meeting that “stabilizing growth” will replace “stabilizing prices” as the policy priority, she said.

Nomura this week cut its 2012 growth forecast to 7.9 percent from 8.6 percent as home sales slide and Europe, the nation’s biggest export market, faces the risk of a recession. Banks including UBS AG, Citigroup Inc. and Morgan Stanley have also reduced their estimates.

China’s expansion slowed to 9.1 percent in the third quarter, the least in two years, after the government raised interest rates, tightened credit and expanded property-market curbs.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

http://www.bloomberg.com/news/2011-12-09/china-inflation-cools-to-slowest-in-14-months-giving-room-to-ease-policy.html

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