China's February CPI rise may be peak of 2018

China's consumer price index (CPI) growth beat market expectations in February but may already be as high as it will go this year, analysts said.

The CPI rose 2.9 percent year on year in February, up from 1.5 percent for January, data from the National Bureau of Statistics (NBS) showed Friday. Previous expectations fell in the 2.5-2.7 percent range.

Spring Festival, in February this year but in January last year, contributed to the increase due to a low comparison base, NBS statistician Sheng Guoqing said.

Holiday demand pushed up food prices by 4.4 percent and non-food prices by 2.5 percent.

Deng Haiqing, chief economist with brokerage firm JZ Securities, also attributed the higher-than-expected figure to low base and seasonal factors.

"At the end of last year, market expectations for February CPI were about 2.8 percent. But the expectation was lowered as pork and crude oil prices fell," Deng said.

"As holiday factors ebb, March CPI increase will be less," Sheng said.

Deng said that the 2.9 percent CPI increase "will surely be the highest of the whole year," and the annual inflation will be between 2 percent and 2.5 percent.

This year, China expects CPI to increase by around 3 percent, the same as the target for 2017.

On a month-on-month basis, CPI was up 1.2 percent from January, mainly due to Spring Festival demand and low temperatures that drove up the prices of some agricultural products.

China's prudent monetary policy will remain neutral this year, with easing or tightening only as appropriate. Deng said moderate inflation will not lead to any tightening of monetary policy this year.

"High inflation this year is highly unlikely. The central bank will not resort to policy tightening when CPI growth is no more than 2.5 percent," Deng said.

Inflationary pressure will come mainly from food prices under the influence of low comparison base.

The producer price index (PPI), which measures costs of goods at the factory gate, rose 3.7 percent year on year in February, down from a growth of 4.3 percent in January, according to the bureau.

PPI has increased for 18 months. In the first two months, the PPI rose 4 percent year on year. On a monthly basis, the index for February was down 0.1 percent from January.