BEIJING, Nov. 10 (Xinhua) -- China's consumer inflation rate remained at its lowest levelsince January 2010, while factories' wholesale prices contracted for a 32nd straight month,official data for October showed.
The latest retail and wholesale consumption figures suggested weak domestic demand,falling commodity prices, subdued manufacturing activity and lingering overcapacity in theChinese economy, analysts said.
CPI INFLATION EASES
China's consumer price index (CPI), a main gauge of inflation, grew 1.6 percent year onyear in October, the National Bureau of Statistics (NBS) said in a statement on Monday.
The inflation index was in line with the consensus projection, and was the same as that ofSeptember, which was the lowest since January 2010.
On a monthly basis, the October inflation index was flat against the previous month,compared with September's 0.5-percent increase, NBS data showed.
For the first 10 months, inflation grew 2.1 percent year on year, well below the 3.5-percentfull-year target set by the government.
Yu Qiumei, a senior NBS statistician, said higher food prices were the main contributor toCPI growth last month.
Food prices, which account for about one-third of the weighting in the CPI calculation, rose2.5 percent from a year ago in October, lifting the CPI by 0.83 percentage points.
In the food category, the price of fresh fruit surged 15.2 percent, increasing the CPI by 0.3percentage points. The price of eggs soared 16.4 percent, contributing 0.14 percentagepoints to the CPI.
The food inflation was offset by easing non-food inflation, which edged up 1.2 percent yearon year in October. Subdued non-food inflation mainly came from falling fuel prices.
Last month, the price of gasoline and diesel dropped 5.6 percent and 7.8 percent year onyear, respectively, as a result of China's cuts in the retail price of gasoline and diesel amidfalling global commodity prices, Yu said.
Month-on-month growth in transportation and communication prices was significantlyweaker than the historical average, as falling oil prices drove down transportation prices,said Bob Liu, analyst at the China International Capital Corp (CICC).
As the effect of falling oil prices is felt to a greater extent, CPI will face more downwardpressure, Liu said.
WORRISOME PPI
The producer price index (PPI), which measures inflation at the wholesale level, droppedmore than expected by 2.2 percent year on year last month, NBS data showed.
The PPI declined for the 32nd straight month and at a faster pace than the previousmonth. On a monthly basis, the PPI index contracted 0.4 percent from the previousmonth.
The month-on-month seasonally adjusted annualized PPI index stood at 5.5 percent inOctober, showing significant PPI deflation pressure, Liu said.
"The deterioration of PPI deflation was mainly attributable to sharply lower oil prices andovercapacity industries," he said.
Japan-based Nomura Securities also said in a note that falling global commodity prices andworsening overcapacity in upstream industries due to the ongoing property marketcorrection could be major factors contributing to the PPI deflation.
Chang Jian, Barclays chief China economist, said in a note that today's data confirmedsluggish domestic demand and rising disinflationary risks.
"We expect continued PPI deflation through 2015 and the government's latest 'going out'efforts to support Asian infrastructure investment offer some solution to the domesticovercapacity issue," she said.
POLICY IMPLICATIONS
Qu Hongbin, HSBC chief China economist, maintained that the momentum of low inflationgrowth is likely to persist in the coming months, as price growth weakened in almost allsub-categories of CPI and PPI.
The low inflation reading also confirmed messages from the HSBC October PMI that theChinese economy suffers from insufficient demand, especially on the industrial front, hewrote in a note.
"Risks of deflation persist, and growth still faces significant downward pressure."
The low inflation reading, together with current low capacity utilization and excessiveinventories, all indicate that the world's second-largest economy is operating below itspotential, he said.
"Targeted (monetary) easing aside, (a) rate cut is still a policy option on the table in thecoming quarters," Qu said.
Chang Jian agreed. October's subdued inflation provides room for more easing from thecentral bank, the People's Bank of China, she said.
But broad-based monetary easing will more likely be triggered by more disappointinggrowth numbers, which Chang expects to come in the coming months.
Chang also lowered her CPI inflation forecast for 2014 by 20 basic points to 2.1 percent "inview of continued downside surprises to CPI inflation."
As lower oil prices continue to filter through to CPI and PPI, CICC's Liu expects year-on-year CPI growth to remain low in November and PPI deflation to worsen.
"The pressure for monetary policy easing will increase," he added.
