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    Forex News – China’s inflation rises at slowest pace in over 5 years

    Posted on February 10, 2015 by the XM Investment Research Desk at 1:25 pm GMT

    ChinaCPIfebInflation in China fell to the lowest level since November 2009, raising concern over a deepening weakness in the world’s second largest economy.

    According to data released by China’s National Bureau of Statistics, the nation’s consumer-price index (CPI) missed expectations of a 1.0% rise year-on-year and rose 0.8% on the year in January. This was down from a 1.5% annual increase in December.

    In addition to CPI, producer prices also came in below forecasts for a 3.8% fall. PPI declined 4.3% in January year-on- year, to mark the sharpest drop since late 2009.

    The weak data will increase rate-cut expectations by the People’s Bank of China (PBOC) and some analysts see a cut as early as in March. The risk of deflation will likely put more pressure on the central bank to inject more stimulus to boost the sluggish economy. China’s growth has been slowing down as the effects of an overall slowing global economy has had an impact.

    China’s GDP cooled to 7.3% in the third quarter of 2014 from a year earlier, the weakest expansion since the global financial crisis, and Q4 GDP came in at a 7.3% pace as well. Meanwhile, Beijing is expected to lower its 2015 GDP target to around 7%, following a 7.4% growth rate in 2014.

    It was reported by China’s statistics agency that falling food, oil and metals prices are pushing inflation lower in China, a consequence of declining global commodity prices.

    Meanwhile, weaker inflation means interest rates in real terms would increase. This would make debt more difficult to repay and this is a big issue in China where local companies are burdened with huge liabilities after the 2008 global economic crisis. In order to avoid a tightening of credit conditions, the PBOC will likely cut its benchmark rate soon. Some analysts predict a cut by 25 basis points.

    Chinese shares closed the day higher on the prospect of further monetary stimulus.

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