Beijing---China's consumer inflation rebounded in February from a more-than-five-year low, official data showed Tuesday, but a plunge in factory gate prices added to persistent concerns about deflation in the world's second-largest economy.
The 1.4 percent increase in the consumer price index (CPI) compared with a gain of 0.8 percent in January, according to National Bureau of Statistics (NBS) figures.
The result, which exceeded the median forecast for a 1.0 percent gain in a survey of analysts by Bloomberg News, came largely due to higher prices for food and services surrounding China's annual Lunar New year holiday, which economists largely saw as a one-off.
In contrast the producer price index (PPI) -- a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI -- declined for the 36th straight month in February.
The PPI fell 4.8 percent year-on-year, the NBS said, more than the 4.3 percent decline recorded in January, and the worst result since October 2009.
Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.
"We continue to expect inflation to remain relatively low and still see disinflationary pressures in the economy," Nomura economists said in an analysis of the February data.
"To offset headwinds to economic growth, we expect monetary policy to be loosened further," they added.
Economists are increasingly worried that China -- a key driver of global growth -- is heading for a debilitating deflationary spiral, such as that which has plagued Japan for years, citing consistently weak CPI figures as well as accelerating falls in factory prices.
The central People's Bank of China cut benchmark deposit and lending interest rates in February for the second time in three months, citing "historically low inflation", as the economy expands at its slowest annual pace in nearly a quarter of a century.
"The weak inflation profile suggests that further monetary policy easing will be needed to fight against rising deflation risk," ANZ economists Liu Li-Gang and Zhou Hao said in a report, adding that despite the rate cuts "the easing effort so far has been limited."
They expect the PBoC to further cut the reserve requirement ratio (RRR) -- the amount of cash banks must keep on hand -- "to lower the funding costs for the real economy". Cutting the RRR theoretically frees up more cash for lending.
They also expect a further 0.25 percentage point cut in the deposit interest rate.
- Nannies and housekeepers -
China's gross domestic product (GDP) expanded 7.4 percent last year, its worst result since 1990, as authorities seek to transform the Asian giant's growth model to one in which consumer spending takes over as the key engine.
And last week leaders lowered their 2015 GDP growth target to "approximately seven percent", while the CPI objective for was set at "around three percent".
Consumer prices rose 2.0 percent last year.
Senior NBS analyst Yu Qiumei said in a statement regarding the February CPI data that fresh food demand rose during the holiday, "leading prices to rise by large margins".
AFP
