China inflation subdued

China’s inflation stayed subdued in January while factory-gate prices extended the longest drop since the 1990s, in a sign of moderating demand in the world’s second-largest economy.

The consumer price index, or CPI, rose 2.5 per cent from a year earlier, the National Bureau of Statistics said in Beijing on Friday, the same pace as in December. The producer-price index fell 1.6 per cent. China’s economic data are distorted in January and February by the shifting timing of the week-long Lunar New Year holiday, which began on January 31 this year.

Friday’s reports may give China’s leaders more room to support economic growth that analysts estimate will be the slowest in 24 years in 2014. The ruling Communist Party is trying to balance reining in a credit boom and extravagant spending by officials with maintaining expansion above Premier Li Keqiang’s seven per cent “bottom line” to sustain employment.

“This moderate inflation actually heightened the downside risks to China’s economy,” Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group in Hong Kong, said in a note. “If the Chinese authorities keep the growth target in 2014 unchanged at 7.5 per cent, the government will have to roll out stimulus policy before June, which could delay the necessary structural reforms this year.”

Food prices rose 3.7 per cent from a year earlier in January, the least since May, while non-food prices increased 1.9 per cent, the most since February 2013, Friday’s data showed. Factory-gate prices eased as production slowed as the new year holiday approached, the statistics bureau said.

Estimates from 45 economists for January’s CPI increase ranged from two per cent to 2.8 per cent, with a median of 2.4 per cent. The gauge rose 2.6 per cent in 2013 and the median estimate of analysts surveyed last month is for a 2014 increase of 3.1 per cent. The government may set a four per cent full-year target, the China Securities Journal said in December.

The CPI partly reflects leaders’ efforts to combat corruption and gift-giving, Chang Jian, Barclays chief China economist in Hong Kong, said in a Bloomberg Television interview. President Xi Jinping started a campaign in late 2012 to limit extravagant spending by and for officials at governments and state-owned companies.

A report from the People’s Bank of China earlier this month suggested that the central bank is less worried about inflation prospects while remaining “concerned about financial risks associated with rising debt levels,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. The PBOC may not loosen policy unless the government’s “bottom line” is threatened, Ding said in an e-mail. In its fourth-quarter monetary policy report, the PBOC said China’s price situation is “basically stable” and dropped comments made in its previous report that the country “can’t be blindly optimistic” about inflation.

Policy makers are trying to deal with risks of rising debt and potential defaults. Non-performing loans at banks in the country rose last quarter to 592.1 billion yuan ($97.7 billion), or one per cent of total loans, the highest proportion since 2011, data from the China Banking Regulatory Commission showed on Thursday.

The PPI fell from a year earlier for a 23rd straight month, the longest period since 1997-99. The gauge was projected to fall 1.6 per cent, based on the median estimate of 41 economists, with forecasts ranging from a decline of 1.1 per cent to two per cent.

China Coal Energy, the nation’s second-biggest coal producer by market value, said last month that 2013 profit may have slumped as much as 65 per cent because of falling coal prices and government efforts to reduce reliance on the fuel.