China's inflation off target

China's consumer price inflation eased to 2.1% in the year to December from 2.3% in the previous month. This is below Beijing's target of 3.0% and less than market expectations for a 2.3% increase - sparked by four consecutive months of rising producer prices.

Producer price inflation increased from 3.3% to 5.5% in the year to December. This is higher than market expectations for a 4.5% rise and is the fastest rate of year-on-year increase in producer prices since September 2011.

The below-target CPI inflation update allows the PBOC to lower interest rates, especially as the dichotomy between consumer and producer price inflation suggests soft consumer spending - firms aren't able to pass on higher input prices to the consumer.

However, lowering interest rates would further stoke the property bubble and put more downward pressure on its already embattled currency.

Read more: ChinaBeijingCPIPPI
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