Underlying deflationary pressure has risen in China, with the Consumer Price Index easing to the lowest 0.8 percent last month since November 2009.
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The trend was even more evident in the decelerating contraction of the Producer Price Index. PPI deflation intensified to a 4.3 percent decline from 3.3 percent in December.
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This is the first time that Zhou Xiaochuan has faced such intense deflationary pressure during his 13-year tenure as the country's central bank governor. The governor, who approved the 4 trillion yuan stimulus package - worth about $586 billion at the time, when the yuan was weaker - in the wake of the global financial crisis in 2008, may be more cautious this time.
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Subdued expansion of broad money supply, a glut in the property market and a decline in transport costs caused by plunging oil prices, along with massive excess industrial capacity, are all signs of deflation. They remind policymakers to react appropriately to the situation.
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Premier Li Keqiang is expected to announce the annual CPI and GDP targets in the Government Work Report during the two-week National People's Congress, which opens on March 5. Market observers speculate that the CPI target may be cut to 3 percent from 3.5 percent previously.
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Deepening deflation will keep consumers from spending as they wait for still-lower prices, and companies will invest less capital into production as prices keep falling. That is the last situation the government wants to see.Â