WASHINGTON, (Reuters) – U.S. inflation numbers  soothed fears of overheating from stimulus spending, China and  Japan offered cautiously upbeat views on their recoveries, and  U.S. President Barack Obama unveiled tough regulatory reforms  aimed at avoiding a repeat of the global banking crisis.
There was comforting news yesterday in the U.S. consumer  price report for investors who fear that Obama’s massive  stimulus spending and bank and auto bailout plans would heat up  inflation.

Prices rose a smaller-than-expected 0.1 percent in May, and  core CPI also rose just 0.1 percent — the smallest advance  since December 2008.

Over the past 12 months, prices fell 1.3 percent, the  steepest year-to-year decline since April 1950 in the world’s  largest economy.

In the second biggest, Japan’s government raised its  assessment for a second month, while in China — an important  engine of world economic growth — the cabinet said it saw more  positive signs.

But both Chinese and Japanese policymakers said recovery  prospects were uncertain, a view echoed in Lisbon by European  Central Bank policymaker Vitor Constancio.

“There are risks of a prolonged period of weak growth in  developed economies,” Constancio told a banking conference.

The contraction in global trade was highlighted by U.S.  data showing imports and exports falling further in the first  three months of this year, reducing the world’s biggest current  account deficit to its lowest level since the end of 2001, when  the Sept. 11 attacks shook the world economy.

The U.S. government has been discussing for six months how  best to tighten bank and market regulation in response to the  global crisis, which erupted when a long-running credit boom  fueled increasingly risky lending, notably in U.S. mortgages.

The regulatory reform plan unveiled by the president would  close one regulator, the Office of Thrift Supervision, and put  the Federal Reserve in charge of monitoring big-picture  systemic economic risks.