China's annual consumer inflation hovered at a near five-year low of 1.5% in December, signalling persistent economic weakness but giving policymakers room to ease policy to support growth.
The world's second-largest economy still faces formidable headwinds this year as a property market downturn persists and local governments and companies struggle to repay debt.
"Deflation this year is definitely a risk," said Minggao Shen, economist at Citi in Hong Kong.
"We continue to argue that deflation provides more room for policy easing. Our best-case scenario is still two more rate cuts in the first half of this year and maybe three to four reserve requirement ratio cuts this year."
Analysts polled by Reuters had expected annual consumer inflation to be 1.5% in December, compared with 1.4% in November.
The consumer price index rose 0.3% in December from November, the National Bureau of Statistics said today, in line with economists' expectations.
The producer price index in December declined 3.3% from a year earlier, its 34th consecutive monthly decline and the biggest decline since September 2012, as sluggish demand curbed the pricing power of companies.
The fall in PPI in December was largely because of a decrease in global oil prices, the bureau added.
The market had expected a 3.1% fall in producer prices after a drop of 2.7% in November.
Annual consumer inflation was 2% in 2014, well below the government's target of 3.5%. The producer price index fell 1.9% last year.
The People's Bank of China is widely expected to ease policy by cutting interest rates further or lowering reserve requirement ratios for all banks, although some analysts believe it may be pausing on policy easing to wait for recent actions to take effect and lift growth.
It cut interest rates in November for the first time in over two years to lower borrowing costs to support growth. Later, it loosened loan restrictions to encourage banks to step up lending.
China's annual economic growth likely slowed to 7.2% in the fourth quarter, the weakest since the depths of the global crisis, a Reuters poll showed, suggesting full-year growth will undershoot the official target and marking the weakest pace in 24 years.
The government is due to publish trade data and bank lending data next week, followed by data on fourth quarter GDP, industrial output, urban investment and retail sales data for December on 20 January.