China’s factory gate prices extended their falling streak to 47 months in January, indicating persistent deflationary pressure and fuelling calls for further supportive policies to counter economic headwinds. Experts said economic deterioration would lag structural adjustment so Beijing should focus more on monetary and fiscal policies to counter downward risks than on supply-side reforms. Producer prices fell 5.3 per cent in January year on year, smaller than the fall of 5.9 per cent in December, the National Bureau of Statistics said. READ MORE: China’s inflation edges up 1.6 per cent in December as food prices rise, pork jumps 9.5 per cent But the improvement was largely due to a lower base of comparison – economists said deflationary pressure remained substantial and there were no signs of a quick recovery. Steel, coal, and non-ferrous sectors have suffered losses across the board with falling prices and weak demand. Rises in non-performing loans, declines in manufacturing profits, and government efforts to address excess capacity have all added pressure on the economic outlook. Producer price index deflation was expected to last another two years, as were government efforts to address excess capacity and reduce the number of unsold apartments, said Zhao Yang, chief China economist with Nomura Securities. “Deflationary pressure remains great and the growth momentum of demand remains weak, leaving room for further loosening of monetary policy,” he said. China International Capital Corporation said the targets unveiled by the State Council this month to cut capacity in coal and steel over the next five years were much lower than expected. READ MORE: China’s premier pledges ‘decisive’ action to keep nation’s growth on track as economy slows This might reflect Beijing was worried about short-term economic growth and might pay more attention to policies to stabilise growth, such as extending the fiscal deficit and issuing more bonds to support the construction of infrastructure, CICC said. The fiscal deficit last year accounted for 3.5 per cent of GDP, much higher than budgeted, and Nomura’s Zhao predicted 2016’s fiscal deficit would not be lower than last year’s. In the short term, the central bank may choose to adjust liquidity and market rates via its daily operations with banks due to concerns over the yuan’s exchange rate, but it still needs to cut interest rates to lower the corporate debt burden and boost investment motives. “We maintain our forecasts for two cuts in policy interest rates this year, although the timing of the first cut may be further delayed until macro data point to further deceleration in growth,” said Bank of America Merrill Lynch. The consumer price index rose to 1.8 per cent last month, up from 1.6 per cent in December, but lower than the market expected, the National Bureau of Statistics said. But the rise in consumer inflation was largely from rises in food prices due to bad weather last month and higher demand leading up to the Lunar New Year holiday, which came one week earlier than last year.