China's food prices rice as economy slows

China's inflation rose in February at its lowest pace in 20 months, providing more room for the government to stimulate growth in the world's second-largest economy. The consumer price index (CPI), a main gauge of inflation, increased 3.2 percent year-on-year last month, the National Bureau of Statistics said Friday. It eased from a 4.5-percent rise registered in January, when the Chinese New Year shopping spree boosted retail prices. With inflation pressures fading, it leaves Chinese policymakers with more room to further loosen the monetary policy so to shore up growth, said Teng Tai, chief economist at Minsheng Securities. The pullback in February's CPI rise, along with continuous food price declines, indicates the government's inflation control target could be reachable this year, said Yuan Gangming, a researcher with Tsinghua University. The Chinese government has cut the projected economic growth to 7.5 percent for this year and aims to keep the CPI increase to around 4 percent. In the first two months, the country's CPI climbed 3.9 percent compared with the previous year. On a monthly basis, CPI dipped 0.1 percent in February, the NBS said. The slower CPI growth in February, pared by a higher comparative base from last February, also was the result of a deceleration in food price growth. Food prices, which account for nearly one-third of the weighting in the calculation of China's CPI, increased 6.2 percent last month from one year earlier. Food price growth slowed from January's 10.5 percent rise. The price of pork, China's staple meat, jumped 15.9 percent year-on-year last month after surging 25 percent in January. Prices of non-food items climbed 1.7 percent year-on-year in February but stayed flat compared with January. The producer price index, a measure of upstream inflation pressures, was flat in February compared with a year earlier. However, analysts warned about possible risks of imported inflation because of resurging global commodity prices, especially the price of crude oil. Importantly, the February CPI has declined under the benchmark deposit rate, bringing the real deposit rates into a positive territory for the first time since January 2010. "This and a moderation in CPI growth will increase the possibility that the central bank would cut the reserve requirement ratio (RRR) for banks in the near future," said Lian Ping, chief economist at the Bank of Communications. The country's central bank last month lowered the the RRR by 50 basis points, the second cut in three months, underling its efforts to ease short-term credit crunch and secure growth in the wake of a lackluster external market. Weakening demand for exports because of the eurozone debt morass and a sluggish US economy have weighed on the Chinese economy, as its GDP growth slowed to 9.2 percent in 2011 from 10.4 percent in 2010. The government has vowed to continue implementing a proactive fiscal policy and a prudent monetary policy this year, but emphasised to carry out "timely and appropriate anticipatory adjustments and fine-tuning" in the light of emerging conditions.