China's January inflation slows to 2 pct

China's annual consumer inflation for January eased from a seven-month high in December despite rising food prices, data from the National Bureau of Statistics (NBS) showed Friday.

The consumer price index (CPI), a main gauge of inflation, grew 2 percent year on year in January, according to the NBS.

On a month-on-month basis, January's CPI rose 1 percent from the previous month, according to the NBS statement.

The month-on-month growth rate marked an 11-month high, as a cold winter and holiday demand have significantly pushed up vegetable and meat prices, said Yu Qiumei, a senior statistician with the bureau.

China is experiencing an unusually cold winter. Persistent icy weather in south China and lingering smog in north China have disrupted traffic and affected agricultural production, Yu said.

Food prices, which account for one-third of the prices used to calculate the CPI, rose 2.9 percent in January from one year earlier, pushing the index up 0.95 percentage points, according to the NBS.

However, January's CPI data was benign year-on-year partly because of the base effect. The year-ago comparison figure was high, as the Spring Festival holiday fell in January last year and pushed up food prices for that month.

The base effect contributed 1 percentage point to January's CPI growth year on year, the NBS said.

However, analysts say price pressure will build in the coming months.

The downward trend in January will be temporary. The country's inflation will pick up steam in February, with the growth rate accelerating to 2.7 to 2.9 percent, the China International Capital Corporation (CICC) said in a report.

The company's view was backed by Tang Jianwei, senior analyst at the financial research center under the Bank of Communications.

China's inflation will enter a preliminary upward phase in 2013, Tang said.

The country's economy has been steadily recovering and resurgent demand will drive up prices. Pork prices, which have a significant influence on the CPI, will regain momentum in 2013, he said.

Monetary quantitative easing implemented in the United States, Europe and Japan, together with China's rising labor and land costs, will all affect the country's inflation this year, Tang added.

Given the inflationary pressure, authorities will have to stabilize their monetary policy and adopt a more active fiscal policy in order to prop up growth without inflating prices, according to Wang Jun, an economist at the China Center for International Economic Exchanges.

Wang ruled out possible tightening of the monetary policy, as the foundation for the current economic rebound is not solid.

China's central bank on Wednesday warned of inflationary risks in its quarterly monetary policy report, saying that the influence of rebounding demand, labor supply changes and global monetary easing on prices must be watched closely.

The central bank has resorted to open market operations, a more cautious monetary tool, to improve the cash flow since August 2012. Interest rates and banks' reserve requirement ratio were both cut twice last year to shore up growth.

Growth in the world's second-largest economy dropped below 8 percent for the first time since 1999 last year amid an external downturn and domestic tightening measures intended to tame inflation.