No fear of deflation

With the annual consumer inflation falling to a 30-month low of 1.8 percent in July, some experts have urged the government to take precautionary steps against deflation.

It's too early, however, to discuss deflation because the possibility of inflation rebounding in the coming months remains high. The market has been anticipating an interest rate cut or reserve requirement ratio adjustment for the banks after the news that inflation continued to decline.

Indeed, as growth slows, the authorities may cut the interest rate or adjust the reserve requirement ratio to anchor the economy. Low inflation has rid policymakers of the worry that easing monetary policy could lead to rising prices.