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China inflation hits 5-year low, reflects sputtering economy.

Analysts also said that factory deflation remains a big worry.

Beijing -- China's annual consumer inflation hit a five-year low in January while factory deflation worsened, underscoring deepening weakness in the economy and heaping pressures on policymakers to inject more stimulus to underpin growth.

The risk of deflation is rising for the world's second-largest economy as a property market downturn and widespread factory overcapacity have been compounded by an uncertain global outlook and falling commodity prices.

A collapse in global oil prices have already unleashed a wave of easings around the world as central bankers from Europe to Canada to Australia sought to defuse the deflationary pressures and bolster their economies.

And more policy support is expected from Beijing after the National Bureau of Statistics said on Tuesday that China's consumer price index rose 0.8 per cent in January year-on-year, undershooting expectations of a one per cent rise and marking the weakest reading since November 2009.

"[Tuesday's] data confirmed the economic slowdown in January, while intensifying disinflation will weigh further on firms' profit margins," said Julia Wang, Greater China economist at HSBC.

"This increases the need for further monetary easing. We continue to expect another 25bps cut to the policy rate in Q1."

Analysts also said that factory deflation remains a big worry.

The data showed producer price index dropped 4.3 per cent in January from a year earlier, worse than a 3.8 per cent fall expected by analysts and extending factory deflation to nearly three years. Price cuts have sapped profitability of Chinese manufacturers.

"The PPI really shocked us," said Zhu Qibing, a macro-strategist at Minzu Securities in Beijing.

Zhu expects the People's Bank of China bank to cut interest rates around March and April to support the economy.

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Geographic Code:9CHIN
Date:Feb 10, 2015
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