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China's Feb CPI falls to -1.6%
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China's consumer price index (CPI), a main gauge of inflation, fell to minus 1.6 percent year on year in February, the National Bureau of Statistics said on March 10.

This was the first monthly fall since December 2002, when prices slid 0.4 percent.

The CPI was unchanged month-on-month, the NBS said.

The producer price index (PPI), which measures inflation at the wholesale level, fell for the third straight month, dropping 4.5 percent year-on-year in February, the NBS said.

It said in a statement that the February figure did not represent a deflation problem in China, since money supply was ample because of the proactive fiscal policy and the relatively easy monetary policy.

"We do face price downward pressure, but that cannot be translated into a deflation problem," said Zhang Xiaoji, researcher with the Development Research Center of the State Council, a government think tank.

Su Ning, vice governor of the People's Bank of China (PBC, the central bank), said Tuesday that deflation would not occur given banks' ample liquidity.

Falling world prices

The NBS said falling international commodity prices, caused by the global economic downturn, contributed to the domestic price fall.

The high statistical base of comparison from a year earlier also contributed to the declines in prices, it said. Last February, inflation hit a 12-year high of 8.7 percent.

But during February 2008, prices were affected by transport disruptions caused by prolonged severe weather in much of China. Also, the Lunar New Year fell in February last year, rather than January as it did this year, and so holiday-related consumer spending shifted.

The agency said the CPI in the first two months of 2009 dropped 0.3 percent from the same period last year.

The price declines "reflect how severely the economy was affected by the global financial crisis in the second half of last year," said Zuo Xiaolei, chief economist with Galaxy Securities.

It would not be surprising if prices fell further in the next few months, as both domestic and overseas demand had fallen since late last year, said Wang Xiaoguang, economist with the National Development and Reform Commission.

Also, he noted, there was a "commodity price bubble" early last year that persisted until mid-year.

Fight against deflation

China spent years striving to contain inflation and runaway economic growth. But as the global slump began to affect the world's third-largest economy, the government shifted focus to fighting deflation and maintaining growth.

Yi Gang, PBC vice governor, told Xinhua Saturday that the central bank had sufficient tools to fight deflation.

He noted the country had not confronted a typical deflationary period, which was characterized by contracting loans and money supply, a recession and falling prices.

To prevent deflation, real loan growth this year was expected to exceed 5 trillion yuan (735.3 billion U.S. dollars), Su said Tuesday while discussing the new price figures.

China's money supply rose by 17.8 percent and 18.8 percent in December and January, respectively. New loans hit a record of 1.6 trillion yuan in January, double the year-earlier figure, and are expected to have grown further in February.

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