The growth of China's producer price index (PPI) slowed to 5.8 percent year-on-year in January, giving fresh evidence that the government's austerity measures are succeeding in helping to rein in the economy.

Down from a 7.1 percent increase in December, producer prices saw their slowest growth in eight months, according to figures released by the National Bureau of Statistics (NBS) yesterday.

"This is definitely good news for the government," said Stephen Green, senior economist with the Standard Chartered Bank of England.

Analysts say that the drop is the result of efforts to prevent runaway economic growth since last year.

The index is one of the most important gauges that government officials and economists use to monitor the progress of the nation's economy.

According to the NBS, the purchase prices of raw materials, fuel and power jumped by 10.7 percent year-on-year in January, with the growth rate slightly down from average levels in 2004.

The price of crude oil and refined oil saw an obvious decline in January. The PPI for crude oil rose 19.1 percent year-on-year, down from 35.6 percent in December.

Many economists had expected the PPI to fall in January, but "the sharp decrease was still a bit stronger than anticipated," said Green.

He expects there could be possible PPI rebounds within the next few months.

Analysts said the drop in producer prices reflects the cooling down of the economy on the one hand, but the evidence is not strong enough for any anticipation that inflationary pressures are already wiped out and there will be no need for further hikes in interest rates.

Gao Huiqing, a senior economist with the State Information Center, said the consumer price index (CPI), a more important barometer for inflation, is not necessarily in tandem with producer prices.

The CPI soared rapidly at the start of last year, adding to concerns about inflation among policy makers.

High inflation was one factor nudging the central bank to make up its mind in October to raise interest rates in a series of steps taken to rein in heavy investment in overheated sectors, such as steel and cement.

(China Daily February 22, 2005)