News from AAP

China January inflation flat at 2.5% year

Print This Post A A A

China’s inflation rate was steady at 2.5 per cent year-on-year in January, with analysts warning the figure suggested weak growth prospects for the world’s second-largest economy.

The consumer price index (CPI) figure announced by the National Bureau of Statistics (NBS) on Friday was unchanged from December, but higher than the median 2.3 per cent expected in a poll of 11 economists by the Wall Street Journal.

The increase in CPI was mainly driven by a 3.7 per cent rise in food prices last month, which included both the Western and Chinese New Year holidays, Yu Qiumei, an NBS analyst, said in a separate statement.

China’s CPI, a main gauge of inflation, rose by 2.6 per cent in 2013, unchanged from 2012 and well below the 3.5 per cent target set by the government.

Inflation in the country has slowed markedly since 2011, when annual CPI spiked to 5.4 per cent, and maintaining growth in the face of domestic and overseas economic woes has since become a higher priority for Beijing.

The producer price index, which measures costs for goods at the factory gate, declined by 1.6 per cent on year in January, worsening from a 1.4-per cent decrease in December, the NBS said in another statement.

Analysts said the subdued inflation readings suggested that domestic demand remained weak, which bodes ill for economic growth this year.

“This inflation profile actually heightened the downside risks to China’s economy,” ANZ economists Liu Li-Gang and Zhou Hao said in a research note.

The government should lower its growth target to as low as 7.0 per cent this year from 7.5 per cent last year to avoid the need for stimulus and allow leeway for the country’s much-needed structural reforms, they said.

Bank of America Merrill Lynch economists Lu Ting and Zhi Xiaojia said the weak data suggested authorities were unlikely to face pressure to tighten monetary policy.

“Subdued inflation would be supportive of a neutral monetary policy,” they said in a research note, adding: “Monetary tightening is not justified.”

Beijing has repeatedly said that it would like slightly slower but better quality growth, and to retool the country’s economic growth model to one driven more by consumption and less by investment.

Although as usual, food prices led CPI increases last month, the pace of their growth slowed from the 4.1 per cent rise recorded in December, NBS data showed.