China’s inflation rate remained near a five-year low in December, edging up to 1.5% from 1.4% the month before. Sharp rises in the price of some food items were behind the increase, including a 14% rise in egg prices.
Consumer price inflation (CPI) for the whole of 2014 was 2% compared with 2013, well below the government’s target of 3.5%.
Analysts suggested the data pointed to persistent weakness in the world’s second largest economy.
The producer price index (PPI), which includes wholesale and factory price inflation, fell by a greater than expected 3.3% in December from a year earlier marking the 34th consecutive monthly fall since September 2012. Analysts had expected PPI to fall by 3.1% in December.
China’s National Statistics Bureau said the fall was largely due to falling oil prices. Together, the inflation numbers point to weak domestic demand across China, which some analysts say may give the government room to cut interest rates and take other measures to boost growth which has slowed to a five-year low of 7.3% in the three months to the end of September.
On Thursday, China said the recent approval of infrastructure projects would not “play the role of using fiscal expenditure as strong economic stimulus in 20153 and that the projects were different to stimulus measures introduced in 2008.
Liu Ligang, an economist with ANZ in Hong Kong, said China’s inflation had been “very tepid”.
“Going forward, we do see the risk of deflation is rising, especially [as] PPI inflation has been in negative territory for over 34 months,” he said.
“That means there’s no pass-through effected from PPI inflation into CPI inflation.
“In fact, CPI will continue to be dragged down by PPI inflation in the next few quarters [and] all this suggests the People’s Bank of China will need to act more aggressively.”
