CPI and PPI

The consumer price index (CPI) rose 4.9 percent in January over the previous year, said the National Bureau of Statistics (NBS).The figure is 0.3 percentage points higher than December, and 0.2 percentage points lower than the 28-month high in November.

The producer price index (PPI), the main gauge of inflation at the wholesale level, rose 6.6 percent in January year on year.

The CPI was largely driven up by food prices, which surged 10.3 percent in January over the previous year.

"Extremely cold weather in parts of China and Spring Festival holiday spending pushed up consumer prices," said the NBS.

Although the figure is lower than market expectations of more than 5 percent, inflation remains a daunting challenge given the ongoing winter drought in north China, wage inflation of migrant workers and global commodity price hikes, said Lu Zhengwei, an economist at the Industrial Bank Co. Ltd.

In response, the central bank is likely to further raise the interest rate and the ratio of deposits that commercial banks must set aside in reserves, he said.

Foreign Trade

China's foreign trade surged 44 percent year on year in January to $295.01 billion due to busy shipments in advance of the nation's traditional Spring Festival.

Exports totaled $150.73 billion, soaring 37.7 percent from a year ago while imports skyrocketed 51 percent to reach $144.28 billion, said the General Administration of Customs. The trade surplus hit a nine-month low of $6.45 billion, plunging 53.5 percent over the previous year.

The Chinese New Year fell on February 3 this year, and exporters and importers frontloaded their trading activities in January, said Lu Ting, an economist with the Bank of America-Merrill Lynch.

Export growth momentum is supported by improvements in the economic health of China's major trading partners, and imports are boosted by strong domestic demand growth, said Yu Song, an economist at Goldman Sachs.

China's domestic demand remains buoyant due to continued loose liquidity conditions despite a spate of tightening measures aimed at cooling the economy, he said.

Although the trade surplus contracted sharply, said Wang Tao, an economist with UBS Securities, the figure at the start of the year was routinely smaller than other times of the year because of seasonal factors.

Bank Lending

Newly extended loans denominated in the yuan totaled 1.04 trillion yuan ($158.1 billion) in January, 318.2 billion yuan ($48.38 billion) less than the same month last year, said the People's Bank of China.

It seems that the hikes in the reserve requirement ratio and the benchmark interest rate are starting to take effect, said Zuo Xiaolei, chief economist with China Galaxy Securities Co. Ltd.

Wang Jianhui, chief economist with Southwest Securities, said while new lending slowed in January, the figure is still "relatively high," reflecting a strong appetite for lending among banks.

Wang expected the central bank to continue to raise the reserve requirement ratio in the first half, and to raise the benchmark interest rate by 75 percentage points in total in three moves during the year.

Money Supply

China's broad money supply (M2), which covers cash in circulation and all deposits, increased 17.2 percent year on year to 73.56 trillion yuan ($11.2 trillion) as of the end of January, 8.9 percentage points lower than the same period last year, said the People's Bank of China.