(Bloomberg) — China’s inflation eased in January, providing Beijing with more leeway to shore up the economy ahead of a key political leadership meeting later this year. 

The producer price index rose 9.1% from a year earlier, official data showed Wednesday, weaker than economists’ forecasts for a 9.5% increase and down from 10.3% in December. Last month, consumer prices increased 0.9% compared with a year before. This was less than the 1.1% expected.

Inflation has been in a steady decline in recent months, which gave the central bank the ability to lower interest rates and inject liquidity into the financial sector to help a struggling economy. Beijing shifted to a more pro-growth bias late last year as a property market slump and repeated virus outbreaks dragged down growth in the world’s second-largest economy. While the People’s Bank of China refrained from cutting interest rates this week, market watchers expect further reductions in coming months.

Factory-gate inflation declined in January due to lower prices than a year ago. Higher costs in January continued to squeeze manufacturers, with purchasing managers’ surveys showing both input and output price sub-indexes signaling faster gains.

On Tuesday Premier Li Keqiang repeated the government’s pledge to keep prices stable and help companies in downstream sectors ease cost pressures. Authorities should “attach great importance to solving the constraints in economic operations and stabilize market expectations,” the regular State Council meeting chaired by Li concluded.

Inflation among consumers remained subdued despite an increase in seasonal demand for the Lunar New Year holiday, which started on January 31st. This was due to food prices dropping 3.8% in January. The pace at which pork prices fell was 41.6%, while fresh vegetables prices declined 4.1%. 

Core inflation (which excludes volatile energy or food prices) rose 1.2%. This is a sign that consumers are not as demanding as they were in November and December. The seven-day Lunar New Year holiday was a busy period for spending and confidence remained low. Tourism revenue fell 4% in comparison to last year, while it rose 44% above 2019. In January, services inflation increased 1.7%  

Economists expect China’s factory-gate inflation to continue softening during the year to reach an average of 3.9% in 2022, as supply chain bottlenecks ease and because of comparisons with last year’s higher base. The nation’s top economic planner also predicts that PPI will ease gradually, with tighter monetary policy in the rest of the world helping to weaken the rally in global commodities. The National Development and Reform Commission stated in a statement that consumer prices should continue to enjoy mild gains because supplies of essential needs are adequate. 

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