(Bloomberg) -- China’s consumer and producer prices remained subdued in February as food and commodities costs eased, suggesting the country’s reopening won’t be adding to global inflation pressures. 

The consumer price index rose 1% last month from a year earlier, the National Bureau of Statistics said Thursday, the lowest level since February 2022 and well below estimates. Less volatile core inflation eased to 0.6% from 1%, while producer prices stayed in deflation, dropping 1.4%.

“China is deflationary” given how much high unemployment and the ongoing property slump are weighing on costs, said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. The country’s muted price pressures show the fear of the country’s reopening boosting global inflation “does not stand,” he added.

China’s economic rebound has progressed rapidly, with demand for services jumping and home sales showing some signs of stabilization. Still, inflation has been muted as food costs fell after the Lunar New Year holiday and commodity prices like crude oil declined.

“Falling demand after the holiday and sufficient supply” led to the weak CPI figure, Dong Lijuan, NBS chief statistician, said in a statement accompanying the data Thursday. Dong added that the earlier Lunar New Year holiday — it fell in January this year, instead of February — meant the base of comparison was higher.  

China’s benchmark CSI 300 Index traded 0.4% lower as of the mid-day break, as Asian stocks broadly rose. The yuan traded 0.2% weaker at 6.9677 per US dollar as of 11:38 a.m. local time, making it the worst performer in Asia on Thursday.

What Bloomberg Economics Says ...

“China’s mild CPI inflation and deflation in factory-gate prices are likely to continue in coming months. This means inflation won’t be a concern for policymakers in the near term. But we expect pressures to build in the second half, with CPI gains approaching 3% in the fourth quarter as stronger demand stokes prices. In the bigger picture, though, inflation is unlikely to get out hand, given the government’s target for modest GDP growth of 5% this year.”

— Eric Zhu, economist

Read the full report here.

The CPI data may also keep inflation off the minds of policymakers for now as they continue to navigate monetary support for the recovery. 

People’s Bank of China Governor Yi Gang said last week inflation will remain under control in 2023, while suggesting that interest rates are appropriate — a sign that monetary policy will largely be stable. He hinted at supporting the economy in other ways, saying cuts to the reserve requirement ratio remain effective.

“Considering the sharply cooling inflationary pressure, monetary policy could be loosened further,” said Ming Ming, chief economist at Citic Securities Co. China could lower the RRR, the amount of cash banks must keep in reserve, by 25 basis points next month, he said.

Central bank Vice Governor Liu Guoqiang said last week that “inflationary pressures are generally controllable,” though he added that it was still necessary to “remain vigilant against inflation” given the unpredictability of external factors. 

--With assistance from Fran Wang and Wenjin Lv.

(Updates with additional context and commentary.)

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