While China's consumer price index (CPI) fell more than expected, easing worries of tightening monetary policy; producer prices (PPI) also continued to decline, fuelling worries of economic malaise.

China's December CPI registered a 2.5% increase year-on-year, declining from the prior 3.0%, and also settling below the 2.7% consensus forecast. Month-on-month, inflation rose a slight 0.3%, rebounding from a prior 0.1% decline, but clocking in under the 0.4% consensus estimate.

The Chinese government's inflation target is 3.5% and the weak data may ease worries of the need to embark on a path of tightening monetary policy stimulus.

December producer prices, for their part, also continued their decline with a 22nd consecutive drop. The reading of a 1.4% fall matched the prior month's figure, though analysts had expected a slightly smaller decline of 1.3% in factory prices.

The drop in this measure of cost of goods leaving factory gates registered its longest decline since the 90s. This producer price deflation could signal that manufacturers are facing challenges, implying a weaker economic outlook for the Asian giant.

China reports trade data on Friday.

JM

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