BEIJING, Jan. 23 -- China's consumer price index (CPI), the main gauge of inflation, rose 5.9 percent last year after price pressures began to ease in May, the National Bureau of Statistics (NBS) said here Thursday.

    The CPI was 1.1 percentage points higher than the level in 2007,which was also the official target for 2008.

    Prices rose 6.3 percent during the January-November period.

    The CPI for December was up just 1.2 percent, the eighth consecutive month of deceleration and the slowest rise since July 2006, NBS director Ma Jiantang told a press conference.

    The CPI was 2.4 percent in November, and it hit a 12-year-high of 8.7 percent in February.

    China set an initial CPI target for 2009 at 4 percent at the Central Economic Conference in December.

    China started out in 2008 with inflation concerns as food and commodity prices spiked, but it ended the year with an unexpected deflation risk.

    Initially, China took steps, including monetary tightening, to fight inflation. Price pressures eased significantly in May before deflation risks rose late in the year, when the global recession crushed the prices of many food and commodity items.

    The producer price index (PPI), a measure of inflation at the wholesale level, fell 1.1 percent in December after rising 2 percent in November.

    Early in the year, when world commodity prices were high and China was in the final stage of preparing for the Olympics, the PPI was rising at rapid rates. So, despite the deceleration in the final third of the year, the full-year PPI increase was 6.9 percent, 3.8 percentage points higher than a year earlier, according to the NBS.

    The sharp fall in commodity prices and weaker demand led to the drop in the PPI, Peng Wensheng, head of China Research at Barclays Capital, wrote in a research note.

    "We expect CPI inflation to ease further," Peng said, adding that consumer prices might even fall in the first half of 2009, before rebounding later in the year.

    China faces deflationary pressure but not for long, a government economist who asked not to be identified told Xinhua.

    Deflation "isn't a problem, but a good thing this year. Price declines can spur demand," he said.

    Economists have warned that prolonged deflation could raise real interest rates and discourage business investment.

    "But the government should control investment in such sectors as steel which have excess capacity. Reckless increases in investment aimed at averting deflation could cause big problems," the government economist said.

    "The effective control of price hikes not only helps raise living standards, but more importantly, gives us room for macro-economic controls," NBS director Ma noted.

    China has cut interest rates five times since mid-September and lifted credit quotas in an effort to stimulate growth.

    Gross domestic product expanded 6.8 percent in the fourth quarter, down from 9.9 percent in the first three quarters and 13 percent in 2007.

    (Source: Xinhua)