-Yao Wei, China economist at Societe Generale SA
China's inflation unexpectedly picked up in February, due to higher food prices during the Lunar New Year holiday, easing concerns over deflationary threat in the world's second biggest economy. According to the National Bureau of Statistics, the consumer price index climbed 1.4% on year, overshooting median analysts' expectations for a 0.9% rise, after a 0.8% climb a month earlier. Beijing, however, is targeting 3% inflation, down from 3.5% in the previous year. For the whole 2014, consumer inflation was 2%. In addition to that, China's leaders announced last week an economic growth target of around 7% for this year, below the 7.5% goal in 2014, whereas the International Monetary Fund is expecting a 6.8% growth.
Wholesale prices, in contrast, declined 4.8% in the reported period, following a 4.3% drop in January, marking three full years of prices decreases at the factory gate. The drop came amid sliding prices for global commodities, particularly energy. The People's Bank of China cited the weak inflationary trend since late 2014 as the main reason for its 25 basis point cut in benchmark interest rates effective March 1, China's second rate cut in over three months. The central bank said the reduction was intended to correct a situation in which lower prices were in effect raising financing costs for businesses.
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