Inflation in China accelerated unexpectedly in January because of higher food prices during the Lunar New Year holiday.
The pick-up in inflation breaks a five-month trend of moderating price increases, raising concerns that Beijing may not be able to loosen policy aggressively to support growth.
Nonetheless, economists said they expect inflation to continue to decline in the months ahead, after the holiday effect has faded.
"Food price inflation, in particular, saw a big jump higher in January," Royal Bank of Canada economist Brian Jackson said in a note.
"Nevertheless, the downward trend in underlying price pressures looks intact, and we would expect headline inflation to move lower again in February as the Lunar New Year impact reverses."
The consumer-price index rose 4.5% from a year earlier in January, up from a 4.1% rise in December. Economists polled earlier by Dow Jones Newswires had expected CPI to rise by 4.1% in January, unchanged from December. Meanwhile, the producer price index, an indicator of upstream inflation pressures, continued to moderate. The PPI rose 0.7% from a year earlier in January, down from a 1.7% rise in December and just slightly above expectations of a 0.6% increase.
"The central bank may not loosen policies as fast or on as large a scale as the market expected," said HSBC economist Ma Xiaoping.
Nonetheless, she said she still expects the central bank to cut the required reserve ratio for banks this month, which would free up additional money for lending.
Food prices rose especially quickly, likely due to elevated demand during the week-long Lunar New Year holiday, which fell in January this year but in February last year.
Food prices were up 10.5% from a year earlier, compared to a 9.1% rise in December. Non-food prices rose 1.8%, compared to 1.9% in December.
Meanwhile, the producer price index, an indicator of upstream inflation pressures, continued to moderate. The PPI in January was up 0.7% from a year earlier, slowing from December's 1.7% and just slightly above expectations of 0.6%.
"The CPI number was likely distorted by the New Year effect. The PPI number is still on a downward trend, so we think inflation will continue to subside," said HSBC's Ms. Ma.
On Tuesday, in a sign that Chinese authorities may be growing more comfortable with the inflation situation, the government raised its ceilings for retail gasoline and diesel prices by around 3%. Beijing benchmarks retail fuel prices to international oil prices, but sometimes delays adjustments when it fears increases could add to inflationary pressures.
Also on Tuesday, the People's Bank of China said in a statement it will strengthen support for building affordable housing, and work to satisfy first-time home buyers' demand for mortgage loans.
Although the PBOC statement contained no details about policy initiatives, some analysts interpreted it to mean the loosening of some controls on the property sector that have brought down prices and depressed sales. Shares in Chinese property developers rallied following the statement.
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