The Consumer price index of China cooled off in the month of August to 6.2% y-o-y after touching a three year high of 6.5% in the month of July. The inflation figure came in line with expectations as economists were expecting inflation between 6.1% and 6.2%.

The PPI rose 7.3% y-o-y in August compared to an increase on 7.5% in July.

The moderation in the inflation can now help China in holding the interest rates steady after increasing the rates five times in the past year.

Beijing may now soften its stance in the monetary policy as inflation has cooled, amidst the growing concerns of double dip in US and escalating sovereign debt crisis in Europe which may hurt its exports.

Some economists feel that inflation is still a major concern, it may have peaked out but it will remain elevated for medium term and would complicate the monetary policy decisions.

The Chinese officials should now take a very judicious and cautious approach before taking a soft stance, as its extremely loose monetary policies in 2009 and 2010 have created high inflation and potential risk of creating an asset bubble.

It is widely expected that no major macro policy change will take place unless the Chinese growth is impacted badly because of the global concerns.