* Dec CPI +2.5 pct yr/yr, vs forecast +2.7 pct
* Dec PPI -1.4 pct yr/yr, vs forecast -1.3
* Dec CPI +0.3 pct from Nov, vs f'cast +0.4
* No sharp policy shift but deleveraging continues
By Aileen Wang and Kevin Yao
BEIJING, Jan 9 China's annual consumer inflation
slowed more sharply than expected to a seven-month low of 2.5
percent in December, easing market fears of monetary policy
tightening although the central bank is tapping the brakes on
Rising money market rates and bond yields indicate the
People's Bank of China (PBOC) is targeting bank liquidity
conditions to reduce debt levels and contain credit growth, but
there is little sign of a sharp turnaround in its policy stance.
The central bank has pledged to continue to maintain prudent
monetary policy in 2014 and keep reasonable money and credit
growth to support the real economy.
"Inflation pressures remain modest, which will allow
policymakers to continue focusing on policies to support growth
while implementing structural reform measures in 2014," said
Xiaoping Ma, an economist at HSBC in Beijing.
The drop in inflation last month, from November's print of 3
percent, was sharper than a fall to the 2.7 percent rate
expected by the market, slowed by volatile food costs.
PRICE PRESSURES TO PICK UP IN 2014
Food prices rose 4.1 percent in December from a year
earlier, slowing from November's 5.9 percent rise, the National
Bureau of Statistics said on Thursday.
Month-on-month, consumer prices rose 0.3 percent versus 0.4
percent expected by economists.
But analysts warn inflation may quicken in coming months as
the government pushes market-oriented reforms to liberalise
energy and utility prices.
"While CPI inflation came in lower than expected, the
January figure will likely exceed 3 percent again due to the
Chinese New Year effect," said Zhou Hao, an economist at ANZ in
"Inflation could exceed 3.5 percent in the second half of
2014, as upcoming pricing reforms could push up commodity and
public utility prices. Therefore, we think that CPI inflation
will be 3.2-3.4 percent on average this year."
China's inflation was 2.6 percent over the whole of 2013,
well within the government's target limit of 3.5 percent, the
bureau said. Analysts believe the government will also stick
with the 3.5 percent inflation target this year.
The bureau also said that China's producer prices fell 1.4
percent last month from a year earlier - the 22nd consecutive
month of decline - versus the same rate of factory price
deflation in November.
Analysts expect the Chinese authorities to rein in the
sprawling shadow banking sector under their long-term
deleveraging drive in a bid to put the world's second-largest
economy on a more sustainable footing.
Reuters reported earlier this week that the State Council,
China's cabinet, had issued new policies to strengthen
regulation of off-balance-sheet lending in an effort to contain
the risk of a debt crisis.
"Inflation is not a major concern at this stage, but the
crackdown on shadow banking will likely intensify, and financial
institutions may need to deleverage further," Zhiwei Zhang,
China economist at Nomura in Hong Kong, said in a research note.
The inflation news precedes December trade figures due on
Friday and fourth-quarter gross domestic product data due on Jan
Economists polled by Reuters forecast annual economic growth
could slow to 7.6 percent in the fourth quarter from 7.8 percent
in the previous quarter, putting 2013 GDP expansion on track for
the weakest showing in 14 years.
Chinese leaders have pledged reasonable growth in 2014, and
sources at top government think tanks told Reuters they expect a
growth target of 7.5 percent, the same as for 2013.