Beijing, CHINA – China’s inflation has eased to the slowest pace in 20 months but industrial-output growth also receded to the lowest level since July 2009 in the first two months of the year, according to the data released Friday. According to the country’s National Bureau of Statistics, consumer prices rose 3.2 per cent in February from a year earlier as compared to 4.5 per cent in January. This is the lowest since July 2010 when inflation reached a high of 6.5 per cent.

Weak demand from Europe that has weighed heavily on exports is said to be the main factor behind the decline in consumer prices. But analysts said the reading in the first two months of the year could be misleading as during the holiday seasons buyers spend heavily.

“The latest consumer price index number is mainly because of the dissipation of the Chinese New Year effect,” Kevin Lai from Daiwa in Hong Kong was quoted by BBC as saying. “Prices came down after the holiday, especially food prices.” According to the data released Friday, local-currency loans were 710.7 billion yuan ($113 billion) in February.

Factory output rose 11.4 per cent in January and February combined slowing from December’s 12.8 per cent. Retail sales advanced 14.7 per cent, which was below forecasts by analysts. Retails sales have slowed down from December’s 18.1 per cent growth.

Retail sales were predicted to rise 17.6 per cent in January and February and industrial output growth was forecast at 12.3 per cent. Bloomberg reported that this has boosted the case for easing monetary policy in the world’s second-biggest economy, which may cool down further.

“Today’s data, with surprisingly low retail sales and output continuing to weaken, point to economic growth further cooling to 8 per cent or lower this quarter,” Ding Shuang, senior China economist at Citigroup in Hong Kong, was quoted as saying by Bloomberg.