In November, the consumer price index CPI, which is a key indicator of retail inflation, fell to 1.5 per cent, down from 2.3 per cent in November and also short of forecasts.
Bruce Pang, a senior vice president of China Renaissance Securities Hong Kong, said the probability of a rate cut in the first quarter is high and the next window is this month.
In 2022, CPI will not be a concern and the core measure, which strips out volatile food and energy costs, will remain muted below 1.5 per cent, he said.
Sheana Yue of Capital Economics said inflation concerns are not likely to hold back the central bank from further loosening measures such as policy rate cuts. Some commentators say the People's Bank of China could cut borrowing costs as soon as April 2020, marking the first since April 2020.
The surging inflation has caused a headache for policymakers as they tried to keep prices from running out of control while also trying to kickstart an economy struggling with a troubled property market and fresh lockdowns caused by COVID-19.
Consumer inflation slowdown came on the back of easing vegetable prices, according to the National Bureau of Statistics senior statistician Dong Lijuan, who said pork costs were moderated because of the accelerated slaughter of live pigs.
The cost of staple meat dropped 36.7 per cent on-year, according to the NBS.
Producer prices were helped as there were declines in the price of most upstream industrial goods such as coal and metals, due to the fall in global commodity prices, according to Yue at Capital Economics.
While worsening virus outbreaks could disrupt supply chains, Yue said, and as coal supply improves and property construction slows, we see further downsides to the price of industrial metals and energy While a narrowing gap between consumer inflation and factory gate costs reduces a squeeze on profit margins, HSBC senior economist Jing Liu said more easing is needed as the consistently low core CPI points to growth pressure.