China Watch Blog

China Watch Blog reports that last week, it was widely reported that China’s economy is slowing, and the country’s inflation eased to a 20-month low last month, creating more room for the world’s second-largest economy to roll out more growth-supportive policies when all other key economic indicators exhibited a slowdown.

The Consumer Price Index, the main gauge of inflation, rose 3.2 percent from a year earlier in February, compared to January’s 4.5 percent, the slowest since June 2010, and ended negative de facto interest rates in the past two years, the National Bureau of Statistics said.

Lower food prices contributed the most to the growth moderation.

Food costs, which account for almost a third of the CPI basket, rose 6.2 percent year on year in February, compared to January’s 10.5 percent.

Although data in the last two months may have been distorted by the timing of the Spring Festival holiday, which was in January this year but February the year before, analysts believe inflation is back on the downward track that was unexpectedly disrupted in January.

“China’s February price data makes it clear that inflation pressures are easing,” said Alaistair Chan, an economist at Moody’s Analytics. “A number of factors, including diminishing producer prices, suggest that overall inflation will continue declining in year-on-year terms until the mid-year.”

The Producer Price Index, the factory gate measure of inflation, edged up 0.7 percent on an annual basis in February, the same as in January.

Jing Ulrich, chairman of global markets, China, at JP Morgan, said lower inflationary pressure suggested the government would have wider scope to implement selective easing measures to counter the downside risks to growth.

“We expect inflation to continue moderating to about 2.8 percent by the third quarter of this year, and further reserve requirement ratio cuts will be needed to maintain stable economic growth,” Ulrich said.

China’s economy is slowing, according to the statistics.