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CPI shows sign of economic 'recovery'

By Wang Xu (China Daily)
Updated: 2009-02-11 07:40

The consumer price index (CPI) in January rose only 1 percent year-on-year, the lowest in 30 months, and the other measure of inflation, the producer price index (PPI), dropped 3.3 percent.

That prompted economists to say the economy may have bottomed out and could start growing again within a few months.

The National Bureau of Statistics (NBS) released the figures Tuesday.

Inflation was a major concern at the beginning of last year. But the tightening of the monetary policy at the end of 2007 caused the CPI to start falling in May after it peaked at 8.7 percent in February last year. It fell to 1.2 percent in December, the lowest since July 2006.

Related readings: Prices indices reflect deflation threats China to see early recovery China's CPI projected to slide further China's economy grows 9% in 2008

The PPI dropped 1.1 percent in December after rising 2 percent in November and hitting a 12-year-high of 10.1 percent in August. The PPI's 3.3 percent decline was the steepest in eight years.

Continuous massive loans from the State banks are likely to keep the CPI above zero in 2009, said Shan Weijian, Bank of Communications analyst. The PPI, however, could show a negative growth.

Earlier this month, Premier Wen Jiabao said at the World Economic Forum in Davos that there were already signs of an economic recovery. Banks lent out 900 billion yuan ($131 billion) in the first 20 days of January, compared with 700 billion yuan in the same period in December and 400 billion yuan in November.

"Both indicators show signs of deflation," Shan said. Food prices, a key contributor to CPI fluctuation, are not likely to increase substantially this year despite the worst drought in half a century, he added.

Reports have said the drought is not likely to reduce grain production notably, while the bumper harvests of the past five years have created enough reserve to offset any shortfall in output.

The lower PPI can be largely attributed to dropping commodity prices after the global financial crisis weakened demand and investment, the NBS said. For example, metal prices in January fell 41.4 percent year-on-year.

"We have to see to what extent the global financial crisis worsens," central bank governor Zhou Xiaochuan said in Kuala Lumpur yesterday. Bloomberg reported that Zhou's remarks were in response to a question on whether China could face deflation.

"Rapid disinflation (and deflation) is creating more room for further easing of the monetary policy," Morgan Stanley's Asia Pacific research team has said in a note. According to the team, China could cut the interest rate by 1.08 to 1.35 percentage points in the first half of this year.

The central bank has cut the benchmark one-year lending rate by 2.16 percentage points to 5.31 percent since last year after the government decided to ease the monetary policy to bolster the economy.

But some analysts cautioned against a rapid rise in inflation toward the end of this year because the government moves to relax lending and spur investment could help increase prices as the economy recovers.