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Consumer, producer prices on slow track

CHINA'S consumer prices grew in January at the slowest pace in 30 months, and producer prices extended their decline as the global financial downturn continued to take its toll on the domestic economy.

The Consumer Price Index, the main gauge of inflation, slowed from the 1.2 percent growth in December to a 1 percent year-on-year rise in January. It was the ninth straight monthly retreat and the weakest gain since July 2006, the National Bureau of Statistics said yesterday in announcing the figures.

Food prices, a major driver of inflation, rose 4.2 percent last month, with pork dropping 13.3 percent. The non-food sector dipped 0.6 percent. The CPI in rural areas rose 1.5 percent for the month while inflation in the cities expanded only 0.7 percent.

"The pace of deceleration was milder than expected, likely because of the Lunar New Year, when demand is usually stronger. There is a considerable chance that a negative figure will be reported in February," said Sherman Chan, an economist for Moody's

China was buffeted by snowstorms in January last year. The pent-up demand was unleashed in February, which posted a decade-high 8.7 percent inflation rate.

Economists had predicted that slower inflation would leave the central bank more room to cut interest rates to spur the slowing economy.

"But with some encouraging signs in recent weeks, including a surge in lending, the pressure for further interest rate cuts is not as strong as it had been," Chan said.

The threat of inflation was a worry for Chinese authorities in the first half of 2008. But price growth faltered in the second half as global financial markets were routed and international commodity prices eased. The central bank has cut interest rates five times since September, with the key one-year lending rate now at 5.31 percent.

China's Producer Price Index, the chief yardstick of factory-gate inflation, dropped 3.3 percent last month from a year earlier, led by declining prices for raw materials and fuel. It was the steepest decline in almost seven years and followed a 1.1 percent drop in December.

The global economic downturn has triggered sharp reductions in the prices of commodities such as crude oil and ore, cutting product input costs for China, the bureau said. But a rebound may be on the horizon.

"There may be upward pressure on producer prices during the second half of the year, as massive infrastructure projects, which are the highlights of the fiscal stimulus package, gather momentum," Chan said.

China has been trying to boost domestic demand through fiscal stimulus measures and an easing of its monetary policy.


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