Deflationary pressure set to remain: analysts
China's consumer price index (CPI) rose to a 5-month high in January, but the producer price index (PPI) remained in negative territory for the 47th consecutive month, official data showed on Thursday.
High demand for food and services ahead of the Lunar New Year holidays and a temporary rise in food prices due to bad weather conditions contributed significantly to the increase in January's CPI data, but deflationary pressure in the economy is likely to continue, analysts noted.
January's CPI edged up 1.8 percent from a year earlier and rose 0.2 percentage points from December 2015, according to data released Thursday by the National Bureau of Statistics (NBS).
The rise in the CPI in January was mainly due to rising food prices, which contributed 0.32 percentage points to the rise, and increasing transportation costs during the holidays, which added 0.09 percentage points, Yu Qiumei, an expert with the NBS, said in an article posted on the agency's website Thursday.
Liu Dongliang, an economist at China Merchants Bank, agreed that seasonal and weather factors might have been the main drivers behind the rise in January's CPI data. But the inflation rate will come down again in the coming months as there is no "pressure" for the CPI to continue to rise, Liu said in a note sent to the Global Times on Thursday.
"In the future, the CPI might increase slightly but will remain in low inflationary territory," analysts from Bank of Communications said in a note sent to the Global Times Thursday.
But Chinese producers seemed to face a worse situation in January, as product prices continued to fall, particularly for some industrial products due to overcapacity issues and sluggish demand at home and abroad.
The PPI dropped 5.3 percent in January from a year earlier, 0.6 percentage points less than December's decline of 5.9 percent, according to the NBS.
Yu from the NBS attributed the decline in PPI in January to significant drops in selling prices for various kinds of industrial products, such as ferrous metals, petroleum products, and chemical materials and products, which saw price drops of 19 percent, 13.5 percent and 6.3 percent year-on-year, respectively.
Deflationary pressure to remain
The PPI data showed some signs of improvement in January thanks in part to a heavier fall in the same period in 2015 and plunging commodity prices worldwide in recent months, Liu noted.
However, deflationary pressure is likely to continue, despite the improvement in January, he said.
Given these conditions, China might need further quantitative easing measures and investment to spur growth, said Li Daxiao, chief economist at Shenzhen-based Yingda Securities.
"All the recent economic data points to ongoing pressure on the economy, which means that monetary easing is still necessary," Li told the Global Times on Thursday.
The People's Bank of China (PBOC), the central bank, has not undertaken broad-based monetary easing such as reducing interest rates or banks' reserve requirement ratio (RRR) since late October 2015.
Instead, the PBOC has chosen to inject money into the market through other channels such as reserve bond repurchase agreements.
"These measures are more suitable for the central bank at the moment because they are more flexible. But in the long run, more measures are needed," Li noted, adding that further RRR cuts are likely.
"For now, since the January CPI and PPI data showed reduced deflationary pressure, the PBC might hold off on further easing measures. But if the pressure persists, we believe the central bank will choose a certain time to take more easing measures," Liu said.
