China Feb inflation +2.3% on-year, fastest rise since July 2014

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Consumer prices in the world's second-largest economy accelerated to a six-month high in February as seasonal distortions caused food prices to spike.

Consumer price inflation rose 2.3 percent from a year ago, faster than January's 1.8 percent rise and well above Reuters expectations for 1.9 percent rise. February's expansion was the fastest annual pace of growth since July 2014, Reuters said.

February's spike was only a temporary effect, warned Grace Ng, greater China economist at J.P Morgan.

"Part of the increase is due to Chinese New Year-related issues. Generally, the inflation picture overall is quite tame. For the whole year, we're still looking for inflation below 2 percent," she told CNBC's "Squawk Box."

The week-long Lunar New Year holiday that began on February 7 tends to increase demand for fresh food every year, which pushes up prices. Unusual cold weather this year also caused a tightening in the supply of vegetables, driving prices higher, according to a Societe Generale note.

Despite the surge, inflation isn't expected to continue accelerating.

China imports are worrisome: AEI
China imports are worrisome: AEI

"We think it would take a big food supply shock or energy price spike for CPI inflation to cross the central bank's 3 percent inflation red line," said Tim Condon, head of Asia research at ING.

Meanwhile, February producer prices tanked 4.9 percent on year, slower than January's 5.3 percent and in line with estimates. This marks the fourth consecutive year of Chinese firms slashing prices of their goods, according to Reuters.

"What's worrying is the PPI deflation trend as that impacts company profits and sales revenue. Considering the fact that the corporate sector is the most leveraged among economic players in terms of financial risk, it's a difficult situation," Ng said.

Asian markets were mixed following the data, with the Shanghai Composite down nearly 1 percent and the Australian dollar, a proxy for China plays, modesty lower at $0.7470.

"The 18 percent month-on-month drop in global crude prices in January ensured that deep PPI deflation will persist until global oil prices stabilize long enough for a low-base effect to kick in, which would be toward the end of the year," said Condon.

"Deep PPI deflation squeezes cash flows in China's highly-leveraged corporates and calls for lower interest rates. We expect the PBOC to cut policy interest rates by 25 basis points."

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