Chinese producer prices rose 5.8 percent in the year through January, the slowest rate in eight months, suggesting a benign outlook for consumer price inflation and steady interest rates in the near term. The producer price index, which measures the cost of goods at the factory gate, has slowed every month since October, when it grew at its fastest rate in at least seven years and fuelled fears that moderating consumer price inflation may not last. The median forecast from eight economists surveyed by Reuters had expected January's producer prices to be 7.0 percent higher than a year earlier.

Analysts have been keeping a close eye on inflation for clues over the progress of Chinese efforts to cool the heated economy as well as the potential need for further interest rate rises.

The National Bureau of Statistics plans to issue consumer price inflation data, also expected to ease further, on Tuesday.

Analysts said the easing of inflationary pressures meant Beijing was likely to leave interest rates unchanged for now.

High inflation was one factor behind a central bank decision in October to raise interest rates, one of a series of steps taken since mid-2003 to cool runaway economic growth fuelled by heavy investment in some sectors, such as automobile production.

It raised rates by 0.27 percentage point, to 5.58 percent for one-year loans and 2.25 percent for one-year deposits. While many analysts think China may be able to relax for now, some say inflation could creep higher again.

Inflationary trends in China, increasingly a trend-setter of tradeable goods prices around the region, are also being eyed for indications on when Beijing might tweak its controversial exchange rate regime.

Copyright Reuters, 2005