China dipped into deflation at the consumer level in February for the first time in more than six years, giving the central bank scope to cut interest rates further if it needs to boost the economy.
The consumer price index (CPI) fell 1.6 percent in the year to February, bang in line with forecasts, but both the government and a number of private economists played down the risk of a protracted period of falling prices.
The lurch lower in February was largely because of the high base of comparison: in the 12 months to February 2008, consumer prices were up 8.7 percent, near a 12-year peak, as the cost of food, oil and imported raw materials soared.
"Deflation, though a real concern, is expected to be a temporary phenomenon," said Jing Ulrich, chairman of China equities at J.P Morgan in Hong Kong.
"That being said, we believe that the government may take additional steps to avoid an extended period of deflation. Further interest rate cuts and required reserve ratio adjustments may be made, and additional measures to stimulate consumption could be introduced," she said in a note.
The year-on-year drop in the CPI was the first since December 2002. more...
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