Core inflation posts largest gain in 4-1/2 years

The market had expected producer prices to fall 5.4 percent, after a dip of 5.9 percent in the prior month.

The PPI data came along with the release of the consumer price inflation index, which rose 1.8 percent in January. Medical care costs rose 0.5 per cent, with prices for prescription drugs also increasing 0.5 per cent. The cost of doctor visits edged up 0.1 per cent after falling 0.2 per cent in December. The index has lingered in deflationary territory for nearly four years.

Energy prices fell 2.8%, led by another drop in gasoline.

Given these conditions, China might need further quantitative easing measures and investment to spur growth, said Li Daxiao, chief economist at Shenzhen-based Yingda Securities. Fueling up is cheaper than it has been in years, with gas costing less than $2 a gallon in many parts of the country.

The monthly decrease was mainly caused by the seasonal fall in prices pf manufactured goods in times of winter sales and the prices of services relates to tourism, the agency said.

A Reuters analysis of 1,200 firms listed on China’s stock markets showed strains on corporate China are intensifying, with many businesses finding more cash is being tied up in unsold inventory while unpaid invoices are piling up as struggling customers take longer to pay.

Signs of a pick-up in underlying inflation are likely to be welcomed by Federal Reserve officials, but significant gains remain a challenge against the backdrop of very low inflation expectations by households.

High frequency data show that food prices continued to rise in early February, which would lift the overall CPI inflation during the month.

The People’s Bank of China (PBOC), the central bank, has not undertaken broad-based monetary easing such as reducing interest rates or banks’ reserve requirement ratio (RRR) since late October 2015.

Economists see growth slowing further to the mid-6 percent range this year.