China January inflation tame at seven-month low, producer prices extend slide

Fri Feb 14, 2014 2:52am EST
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BEIJING (Reuters) - China's consumer inflation hugged a seven-month low in January and showed no signs of accelerating anytime soon, a consolation for the government which may need to loosen policy should economic growth founder.

But in a sign the world's No. 2 economy faces continued headwinds, producer prices fell again in January in an uninterrupted decline that has lasted for nearly two years. Prices of raw materials and means of production all dropped across the board.

Producer prices slid for the 23rd consecutive month by 1.6 percent from a year ago, the National Bureau of Statistics said on Friday.

Consumer prices, on the other hand, were up 2.5 percent, level with December and slightly above market expectations.

"Inflation is not a concern," said Zhu Haibin, a JPMorgan economist in Hong Kong. "The producer price index is probably a bigger concern for policymakers."

Some analysts say excess factory capacity in sectors such as steel, cement, aluminum and glass has dragged on China's production prices in the last two years. Others go further by saying that falling producer inflation is a sign of soft final demand.

ANZ Bank said on Friday that weak producer prices suggested that China is fighting soft demand for its factory goods -- a trend it said is supported by China's falling commodity price index, which is at a seven-month low.

"If the Chinese authorities keep the (economic) growth target in 2014 unchanged at 7.5 percent, the government will have to roll out stimulus policy before June," ANZ said.

China's economic growth narrowly dodged a 14-year low last year by expanding 7.7 percent, a whisker above the government's 7.5 percent target.   Continued...

Customers choose goods at a shop in Beijing October 14, 2013. REUTERS/Kim Kyung-Hoon