We expect CPI inflation to have eased significantly to 4.3% y/y in November, down from 5.5% in October, owing to further price falls and a strong base. Overall food inflation will likely have slowed to 9% y/y from 12% prior, led by lower prices of pork, fresh vegetables and seafood.

Non-food inflation has been slowing since the beginning of the year and will likely continue in the coming months. We look for non-food inflation of 2.3% y/y in November, down from 2.7% prior. We expect inflation to fall further towards 4% y/y by year-end. Producer price index inflation has also likely fallen sharply in November, to 3.1% y/y from 5.0% prior.

Inflation has moved to the sidelines as concerns about growth increase. We expect industry production growth to have slowed further to 12.3% y/y in November from 13.2% prior. The growth of fixed asset investment during the first 11 months of 2011 is likely to have slowed to 24.7% y/y from 24.9% prior.

We expect retail sales growth to have been fairly resilient at 16.9% y/y in November (17.2% prior), given that employment and income growth have remained in good shape so far. The required reserve ratio cut which has been in force since 5 December, signalled a change in China’s policy stance, and indicates that the bank-lending quota will likely be expanded as policy makers attempt to boost lending. Given the liquidity crunch that traditionally comes ahead of the Chinese New Year, we expect another RRR cut in January 2012 and a loosening policy mode.