China Dec inflation rises to expectations, producer prices continue deflation

By Xiaoyi Shao and Pete Sweeney

BEIJING (Reuters) - China's consumer inflation edged up in December, while companies' factory-gate prices continued to fall, adding to concerns about growing deflation risks in the world's second-largest economy.

In line with sluggish activity, China's consumer inflation quickened to 1.6 percent year-on-year in December, as expected, rising slightly from 1.5 percent posted the prior month.

The producer price index was unchanged at -5.9 percent in December, the National Bureau of Statistics said on Saturday, slightly over forecasts, but marking the 46th straight month of PPI declines, highlighting the deeply entrenched pressures facing China's manufacturers as the economy cools.

The prolonged fall in factory-gate prices has eroded earnings of manufacturers and business confidence, as sluggish demand forces them to cut prices to win new business.

An official survey last week showed China's manufacturing sector contracted for a fifth straight month in December and factories continued to shed jobs, dampening hopes that the economy will enter 2016 on steadier footing.

China Beige Book International(CBB) said in its latest survey that growth in input prices and sales prices for Chinese firms slipped to record lows in the fourth quarter.

"For the first time, it looked like firms were encountering genuinely harmful deflation," the private survey said.

"Soft economic growth momentum in late 2015 suggests that deflationary pressures will likely persist into the first half of 2016," HSBC economists Frederic Neumann and Qu Hongbin said in a research report on Friday, arguing that falling commodity prices alone cannot explain the substantial and prolonged weakness in China prices.

"All measures of prices now indicate that the Chinese economy is on the edge of deflation, if not already in outright deflation."

On a monthly basis, consumer prices rose 0.5 percent in December. They steadied in November from the previous month.

China's consumer price index is likely to climb 1.7 percent in 2016 from this year, while its producer price index is forecast to fall 1.8 percent year-on-year, the central bank said in working paper last month.

China is set to release fourth quarter and full-year GDP data on Jan.19.

(Editing by Clarence Fernandez)