China February consumer inflation rebounds, producer deflation intensifies

BEIJING (Reuters) - China's annual consumer inflation recovered in February, exceeding expectations, but producer prices continued to slide, underscoring deepening weakness in the economy and intensifying pressure on policymakers to find new ways to support growth.

The producer price index (PPI) declined 4.8 percent in February, the National Bureau of Statistics said on Tuesday, extending factory deflation to nearly three years.

China's statistics bureau attributed the rise in CPI to price rises in vegetables and fruit, while the decline in PPI - which analysts had expected to come in at minus 4.3 percent - was blamed on sliding prices for global commodities, in particular energy, which have undermined profitability at China's industrial heavyweights.

The risk of deflation is rising for the world's second-largest economy, as drag from a property market downturn and widespread factory overcapacity is compounded by an uncertain global outlook and falling commodity prices.

Analysts polled by Reuters had expected annual consumer inflation to be 0.9 percent in February, compared with a five-year low of 0.8 percent in January.

Chinese leaders announced last week an economic growth target of around 7 percent for this year, below the 7.5 percent goal that was narrowly missed in 2014.

The consumer price index target was put at around 3 percent for this year. Annual consumer inflation was 2 percent in 2014, well below the government's target of 3.5 percent.

The People's Bank of China (PBOC) has cut interest rates twice since November, on top of a reduction in bank reserve requirement ratios (RRR) in February, as regulators show signs of growing concern over lackluster data since the fourth quarter and growing deflationary pressures.

A newspaper owned by the central bank warned last month that China was dangerously close to slipping into deflation, highlighting increasing nervousness in policymaking circles as a sputtering economy struggles to pick up speed, despite a series of stimulus steps.

There could be some distortion caused by the timing of the Lunar New Year as it fell on January 31 in 2014 but fell on Feb 19 this year.

Chinese markets were down slightly on the news, with the CSI300 index <.CSI300> down 0.35 percent in morning trade. The yuan firmed slightly against the dollar to 6.2623.

(Reporting by Judy Hua and Pete Sweeney; Editing by Eric Meijer)