Chinese consumer price inflation slowed more than expected in January, showing price pressures remain in check despite four straight years of double-digit economic growth.
The annual rate fell to 2.2 per cent from 2.8 per cent in December, largely reversing a surge that had fanned fears that inflation was spreading from China's buoyant stock and property markets to ordinary goods and services.
Economists polled by Reuters had expected a 2.5 per cent rise, and the outcome would have been even lower but for a sharp rise in food prices - which were also the culprit for the jump in December's inflation rate from 1.9 per cent in November.
"The moderation certainly is comforting after the sudden spike in December. Obviously the fluctuation was mainly driven by food prices. We think that it is a temporary phenomenon,"
said Yiping Huang, chief China economist with Citigroup in Hong Kong.
Food prices, which make up a third of the index basket, rose 5 per cent in January from a year earlier, with food oil, eggs and meat and poultry all logging double-digit increases.
Grain prices, a key determinant of inflation, were up 6.9 per cent. Last summer they were rising at a 2-3 per cent clip.
Stripping out food, the CPI rose just 0.7 per cent. Yi Gang, assistant governor of the People's Bank of China (PBOC), expressed confidence last night that the rise in grain prices would be temporary and reaffirmed the central bank's target for year-average inflation in 2007 of less than 3
per cent.
Consumer prices on average rose 1.5 per cent in 2006. The dip in inflation means that bank deposit rates are no longer negative in real terms, easing pressure on the central bank to increase interest rates to deter savers from pulling their money out of the bank, perhaps to speculate on stocks.