Data released yesterday by the National Bureau of Statistics show that in February the national consumer price index (CPI) rose 2.0% year-on-year, a sharp 0.5-percentage-point drop from January and below general market expectations. Experts say weak consumer demand reflects downward pressure on the economy and that prices face deflationary pressure; if the CPI continues to fall, monetary policy may enter a window for interest-rate or reserve-requirement-ratio cuts.

 

　　The data show that in February the national CPI rose 0.5% month-on-month and 2.0% year-on-year. The month-on-month rise in consumer prices was mainly due to higher food prices. According to the released month-on-month data, prices of fresh vegetables, fresh fruit and aquatic products rose relatively sharply, together contributing 0.57 percentage points to the overall month-on-month CPI increase, making them the main factor behind the February rise.

 

　　Yu Qiumei, a senior statistician at the Urban Survey Division of the National Bureau of Statistics, said that in the month-on-month food price data, the increase fell 0.7 percentage points from January; the reason is that the month-on-month increases in prices of fresh vegetables, fresh fruit, beef, mutton, liquid milk and dairy products all eased compared with January. During the Spring Festival holiday, holiday factors caused some food prices to rise substantially; after the holiday, demand decreased and prices fell back.

 

　　The released year-on-year data show that the February CPI increase fell 0.5 percentage points from January because the CPI rose 1.1% month-on-month in February last year, raising the comparison base for this February's year-on-year CPI index. Therefore, although the overall consumer price level in February this year was higher than in January, the year-on-year CPI increase in February was lower than in January due to the higher comparison base.

 

　　Lu Zhengwei, chief economist at Industrial Bank, said the 2.0% year-on-year CPI increase was well below the bank's forecast of 2.3%; considering that this came after rain and snow pushed up vegetable prices in February, and consistent with unchanged meat prices in January, demand is extremely weak. In addition, PPI data show a 2.0% year-on-year decline in February, with the decline widening again, suggesting that enterprises remain in dire straits. The weakness of both indices shows that, against the current backdrop of high interest rates, a high exchange rate and high debt ratios, deflation is bound to emerge.

 

　　"If the CPI falls below 2.0%, monetary policy may enter a rate-cut window," said Guan Qingyou, deputy director of the Minsheng Securities Research Institute. He said the economy currently faces considerable downward pressure and full-year GDP growth is expected to be around 7.2%. In addition, Li Xunlei, chief economist at Haitong Securities, expects the CPI and PPI to rise again in the future and says the central bank may cut the reserve requirement ratio.