-Ding Shuang, senior China economist with Citigroup Inc.
During the first month of 2015, Chinese annual inflation rate reached a five-year low, as factory deflation increased, highlighting constant weakness in the economy. Analysts stated that the risk of deflation is growing in China amid falling commodity prices all over the world and property market's poor condition. China's annual CPI growth rate slowed to 0.8% last month, which is twice lower than in the preceding month. This was the weakest reading since November 2009, but it was only 0.2 percentage points below the expectations. Food prices in China also experienced a loss, as well as fuel and metal prices. As a result of those slumps, real interest rates hiked and inflation fell. Another factor involved was an unexpected decline in China's imports, which might have had significant effect on the CPI downturn. It is anticipated, that the People's Bank of China will loosen policy further, as it already cut bank reserve requirements for the first time in more than two years last week. Furthermore, the central bank also slashed benchmark interest rates back in November, in order to decrease borrowing costs and support growth. GDP in China is expected to be 0.4 percentage points lower than the aimed one of 7.4%, the weakest in 24 years.
Meanwhile, the producer price index also slumped in January, marking a 35th decline in a row. The ever-sliding PPI is a sign for policymakers to boost and fight off deflation. PPI plunged more than anticipated, down from -3.3% to -4.3%.
© Dukascopy Bank SA