Inflation hits seven-month low

China's inflation hit a seven-month low of 2.5 percent in December, down from a 3 percent year-on-year rise in November, official data showed Thursday, mainly due to lower food price growth.

Overall inflation for 2013 was 2.6 percent, lower than the official target for a maximum of 3.5 percent.

The consumer price index (CPI). the main gauge of inflation, was also lower than the market expectations of 2.7 percent. The growth of food prices, which slowed down from November's 5.9 percent to 4.1 percent in December, has contributed to the moderate CPI growth, according to the National Bureau of Statistics (NBS).

Food prices contributed 1.33 percentage points to the overall inflation rate in December, driven by the rising cost of fruit, beef and dairy products.

Non-food price inflation edged up by 1.7 percent from a year earlier, driven by tourism, home services and rental costs, according to the NBS data.

"While the short-term inflation outlook appears benign, given contained food prices and moderating growth momentum, we expect CPI inflation to move back above 3 percent in the first half of 2014, with an annual average of 3.1 percent year-on-year," said Chang Jian, China economist at Barclays Capital.

CPI inflation could exceed 3.5 percent in the second half of 2014, as upcoming pricing reforms could push up commodity and public utility prices, Zhou Hao, a Shanghai-based economist at ANZ Banking Corp, told the Global Times Thursday.

Some Net users have complained that the official data downplayed the real inflationary pressure they feel in their daily lives.

"People feel greater pressure from rising prices than the official data shows, because long-term housing investment is excluded from the CPI calculations," Niu Li, a senior economist at the State Information Center (SIC). a government think tank, told the Global Times on Thursday.

"This weighs heavily on residents, and even though the inflation rate seems tame, the continuously growing prices add to their pain," he said, adding that another major factor is that residents' income has not increased as fast as GDP growth.

China's ratio of residents' income to GDP is only about 40 percent, compared with 55 percent in major economies, the China Business News reported on January 3.

Compared with a moderate rise in consumer prices, the producer price index (PPI). a pricing measurement for industrial products, stayed in negative territory for a 22nd consecutive month in December, staying at -1.4 percent, unchanged from November.

"The PPI deflation is larger than expected, suggesting industrial overcapacity and a narrower profit margin for producers," said Niu. China's economy is facing downward pressure, he noted.

A fall in the price of industrial products is unlikely to drive down consumer prices, as labor and energy costs are still rising, said Niu.

The consumer pricing for this year will remain subdued, and China's economic growth is likely to be lower than in 2013, at about 7.5 percent, Niu estimated.

Niu's projection was based on weak demand as a result of modest growth in residents' income and a less proactive investment approach by the government.

"Investment growth on property, manufacturing and infrastructure is unlikely to surpass last year's level," he said.

PPI inflation could rebound to 0.2 percent in 2014 from -1.9 percent in 2013, Lu Ting, chief China economist at Bank of America Merrill Lynch, told the Global Times in a note Thursday.