Quick take: China's 2015 CPI target of about 3% "wildly unrealistic": EIU

EARLIER on Tuesday, China said its consumer inflation jumped to 1.4 per cent in February compared to a year ago, rebounding from a more-than-five-year low. Against January, its CPI rose 1.2 per cent.

Its producer price index dropped 4.8 per cent in February from a year ago, the National Bureau of Statistics said on Tuesday, extending factory deflation to nearly three years. According to Reuters, the market had expected producer prices to fall by 4.3 per cent, the same as in the prior month.

Tom Rafferty, China economist with The Economist Intelligence Unit (EIU) in Beijing, commented on the new figures:

"Seasonal factors pushed annual inflation marginally higher in February, but price rises in China are likely to remain persistently weak for some time yet. Inflation tends to spike before the Chinese New Year period owing to stronger consumer demand. The holiday began in mid-February this year but at the end of January in 2014. The difference in timing contributed to the higher headline figure in February."

"The plunge in global oil prices, weak demand and excess industrial capacity means that the risk of deflation will continue to complicate the outlook for China's economy. Efforts by the authorities to stave off deflation through easing monetary policy have been ineffective so far.''

"As such, we expect them to turn to fiscal policy in order to boost demand; the government has signalled its intentions in this regard by committing to a wider budget deficit this year. These measures, combined with an anticipated rise in global oil prices through the second half of the year, ought to be enough for China's economy to avoid outright deflation. However, disinflation will persist, and the government's targeted rise of "about 3%" in the CPI looks wildly unrealistic."

Last week, China cut its 2015 gross domestic product (GDP) growth forecastto around seven per cent, the lowest growth target in over 15 years, according to Bloomberg. It also lowered its CPI target to around three per cent.