SHANGHAI, Mar. 9 (SMM) -- According to data from National Bureau of Statistics (NBS) on March 9th, China’s February CPI was up 3.2% YoY, and PPI was flat from a year earlier. The eased inflationary pressure will have a profound impact on current macroeconomic policy and will affect sensitive base metal prices.

In this year's government work report, Premier Wen Jiabao pointed out that efforts should be made to curb excessive price increase and to control CPI growth around 4% in 2012 by strengthening macroeconomic regulation. Affected by many factors, China’s quarter on quarter economic growth was on downward trend from last year to the first quarter of this year. In 2011, China’s GPD growth fell from 9.7% in Q1 to 8.9% in Q4, and the decline in GDP growth was extended to 2012. Meanwhile, China’s year on year CPI growth fell from 6.5% in mid-2011 to 4.1% in late 2011. Although CPI slightly rebounded in January 2012 on holiday factors, it is expect that CPI growth will remain around 4% in 1H 2012. Although China’s PMI rebounded slightly for three consecutive months, China’s export, the major factor driving economic growth, failed to show any improvement and domestic demand also did not recover noticeably. The steady decline in CPI growth and the disappearance of negative interest rate provide room for monetary policy adjustment. It is expected that China’s bank requirement reserve ratio shall be cut further in 2012, which will ease tight liquidity and lend support for base metal prices.

It is expected positive policies will be released from the ongoning NPC and CPPCC meetings. Coupled with improved economic data, SMM expects that base metal prices will draw certain support from these positive factors in the short term.