(Yicai Global) March 9 -- China's consumer price index, a gauge of consumer inflation, increased at a slower-than-anticipated rate in February, due to a slump in demand after the Spring Festival holiday that fell in January. And the producer price index, a measure of industrial profits, fell by more than expected because of last year’s high base and as economic recovery is still at an early stage.

In February, the CPI climbed 1 percent from a year earlier, according to data released by the National Bureau of Statistics. This is much less than January’s 2.1 percent annual gain and below the 1.78 percent clip forecast by an Yicai Global poll of chief economists. Month on month, the CPI dipped 0.5 percent, whereas in January it advanced 0.8 percent.

The big drop in the CPI’s annual gain is mainly because the week-long Spring Festival, a peak shopping period, was in February last year, which led to a higher base, said Dong Lijuan, chief statistician at the NBS' Department of Urban Surveys.

Food prices climbed 2.6 percent in February from a year ago, a big drop from January’s 6.2 percent jump, which dragged CPI growth down about 0.48 percentage point, the NBS said.

Pork prices were the biggest drag on food prices, slumping 11.4 percent from the previous month, while that of fresh vegetables tumbled 4.4 percent. Together they accounted for over half of food prices’ braking of the CPI.

Although the supply of pigs resumed after the Chinese New Holiday, there was still a backlog from before the holiday and consumption has been weak since the break, Citic Securities said.

The Chinese government has set this year’s target for consumer inflation at within 3 percent, the same as last year.

Consumer prices will maintain a modest rise this year and scarce demand is the main issue, said Zhou Maohua, macro analyst at Everbright Bank's financial market department.

Producer Prices

Last month, the PPI slid 1.4 percent year on year, a widening of 0.6 percentage point from January’s fall and more than the 1.23 percent drop predicted by the Yicai Global survey. Month on month, the PPI remained unchanged from January, dipping 0.4 percent.

The PPI is still not improving month on month as economic repair is still at an early stage and the real estate market continues to be sluggish, said Wang Qing, chief macro analyst at Golden Credit Rating International. On the other hand, this has become a positive factor in keeping the CPI stable this year.

The PPI may only return to year-on-year growth in the second half, as it will continue to be impacted by the high base last year for the next few months, said Bruce Pang, chief economist of research for China at US real estate services company JLL.

The PPI is likely to hover around 1 percent over the course of the year as global energy and metal prices may slump about 10 percent and as domestic demand gradually becomes stronger, he added.

Editors: Liao Shumin, Kim Taylor