China's inflation rate is expected to decline to 2 percent in 2012, giving more room for monetary policy easing, according to Stephen Green, regional head of research at Standard Chartered Bank's Greater China division.

Green's inflation forecast, the lowest among financial institutions' predictions, is based on the expectations of a marginal increase in global oil prices, a decline in domestic food prices, as well as a drop in the Chinese producer price index (PPI), a leading indicator, in January, sina.com reported yesterday.

"The negative growth in the PPI shows that upstream supply is shrinking. Besides, we believe that there is a three-year cycle for food price inflation. The pork price, in particular, will come down this year," Green told the website.

The consumer price index in January rose 4.5 percent year-on-year, higher than market expectations. But the January PPI was down 0.1 percent on a monthly basis.

"Food inflation was more stubborn in January and February than expected due to cold weather," Deutsche Bank said in a recent research note received by the Global Times.

"In January, the food component of the CPI rose 4.2 percent month-on-month, driven largely by a 26 percent surge in vegetable prices," the bank's China chief economist Ma Jun wrote in the report.

The average January temperature in the country was minus 7.2 C, the second lowest level in 28 years, affecting the agricultural sector, according to the China Meteorological Administration.

The food prices will fall sharply within one to two months, as the weather gets warmer and the Chinese New Year effect comes to an end, Ma said, forecasting the inflation rate to fall to 3.6 percent year-on-year in February and 3.4 percent year-on-year in March.

The People's Bank of China has kept the banks' reserve requirement ratios at historically high levels to curb lending and bring down the spiraling inflation since last year. As a result, new loans in January failed to meet expectations, prompting the central bank to cut the RRR by 0.5 percentage point to 20.5 percent, effective tomorrow.

Green predicted that the central bank will cut the RRR four times this year while keeping the benchmark deposit rate unchanged for the whole year.

But concerns remain as there are signs that the capital flight from the country has reversed since last month and hot money may come back to stoke up prices, Bank of America  Merrill Lynch analysts said in a research note.