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 The producer price index (PPI) declined 4.8 percent in February, the
National Bureau of Statistics said on Tuesday - the most negative
reading posted since Oct 2009 - extending a long-running factory
deflation cycle that began in 2012 to nearly three years.
Economists and policymakers worry that the risk of deflation is
rising for the world's second-largest economy, as drag from a
property market downturn and widespread factory overcapacity is
compounded by an uncertain global outlook and soft commodity prices.
China's statistics bureau attributed the 1.4 percent rise in
consumer prices to higher costs for vegetables and fruit, while the
decline in PPI - which analysts had expected to come in at minus 4.3
percent - was blamed on sliding prices for global commodities, in
particular energy, which have undermined profitability at China's
industrial heavyweights.
"February's seasonal pick-up in food inflation will likely prove
short-lived and we still expect inflation to fall back below 1
percent in coming months," wrote Julian Evans-Pritchard of Capital
Economics in Singapore. "Nonetheless, today's inflation data suggest
that downward pressure on broader prices has begun to ease."
But some economists questioned the significance of the price rise,
saying it was disappointing in the context of Lunar New Year, and
noted there was no significant increase in the price of pork, which
usually rises around the week-long festival.
Annual changes in China's consumer prices will remain positive in
the foreseeable future, the Shanghai Securities News on Tuesday
quoted vice central bank governor Yi Gang as saying, while
economists note the structure of consumer inflation is changing,
showing rising costs for services, clothing, healthcare and
recreation instead of residential inflation, which slowed to 0.6
percent.
"We continue to expect inflation to remain relatively low and still
see disinflationary pressures in the economy," wrote Nomura
economists in a research note after the news.
"To offset headwinds to economic growth, we expect monetary policy
to be loosened further."
The question is how long it will take for easing measures to take
effect. The issue is becoming more pressing because unemployment,
which has remained comfortably low even in the face of a weakening
economy, is seen as coming under further pressure, the social
security minister said on Tuesday.
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Indeed, some economists suspect that many jobs are artificial, with
factory workers being put on half-pay or no pay, or migrated to
low-end service sector jobs in tourism by local officials to avoid
social unrest from layoffs and the negative career consequences of
high unemployment rates in their jurisdictions.
Chinese leaders announced last week an economic growth target of
around 7 percent for this year, below the 7.5 percent goal in 2014.
The consumer price index target was set at around 3 percent for this
year. Annual consumer inflation was 2 percent in 2014, well below
the government's target of 3.5 percent.
Chinese stock markets were down slightly after the news, dragged by
financials, with the CSI300 index down 0.5 percent in morning trade.
The yuan firmed slightly against the dollar to 6.2623.
Combined January and February industrial output, retail sales and
investment data will be released on Wednesday. All are expected to
show slowing growth. Loan and money supply data will also be
released this week.
(Additional reporting by Judy Hua and the Shanghia Newsroom; Editing
by Eric Meijer)
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