China's CPI inflation rose 1.8 percent in January from a year earlier, slightly weaker than market expectations of 1.9 percent; however, it was up from a 1.6 percent increase in December. The rise in CPI inflation is mainly because of food prices which came in at 4.1%y/y.

Overcapacities continue to hold PPI in the deflation zone, as it posted a decline of 5.3% y/y, against previous month's print of 5.9% decrease. The deviating CPI and PPI inflation figures is explained by the weak manufacturing sector on one hand and rising consumption on the other. This marks a structural change in China's economy.

"We believe that the extremely accommodative monetary policy is needed to help the highly-indebted industries to deleverage. Therefore, we maintain our forecast that China's central bank will cut the policy rate by 25bps in Q1, and multiple RRR cuts can be expected this year due to strong capital outflows" says Commerzbank in a research note.