Producer prices fell 5.3%, compared to a 5.4% drop seen, and to a fall of 5.9% in the previous month.
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China’s producer price index declined 5.3 per cent in January from a year earlier, compared with a 5.9% on-year drop in December.
“This was typical seasonal rise, as supply was constrained with lower temperature and demand picked up ahead of the Spring Festival”, BNP Paribas economist Jacqueline Rong Jing said.
The 1.8 percent rise in the CPI was its fastest since August, but largely driven by the 4.1 percent rise in food prices, it did not reflect a visible improvement in economic activity or broader consumer demand, according to analysts. “We maintain our forecast for China to lower the RRR (banks’ reserve requirement ratio) by 50 basis points in the first quarter”. High frequency data show that food prices continued to rise in early February, which would lift the overall CPI inflation during the month.
Liu Ligang, chief China economist at Australia & New Zealand Banking Group Ltd, said that, despite the acceleration, China’s inflation remained weak, and the country may have to deal with rising deflationary pressure in the months to come.
Zhao noted that changes in China’s consumer inflation may be less volatile in future after the NBS appeared to have lowered the weighting of food in its consumer price basket, at the same time as it changed the base year to 2015 from 2010.
HSBC analyst Qu Hongbin also warned that deflationary risk is still lingering, and called for further policy easing to boost domestic demand. That explains the bulk of the slight firming in factory gate prices, he said.
The declines in the producer price index, which have lasted almost four years, result from the slowdown in the investment and manufacturing sectors. Many firms in the industrial sector also face very high refinancing costs in real terms, which have helped fuel bond defaults and an increase in bad loans.
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Consumer prices for transport and telecommunications products experienced deflation in January, the data showed, dropping 1.6 per cent on the year.
