Deutsche Bank issued a recent warning that China is going to experience the worst deflation ever. Both the CPI and PPI of China are running low, and the price of oil and other staple commodities are in a slump, which is causing many investors to take a dim view of the future. Will the prediction come true? The answer is no.

Since last year, the rate of increase in China's CPI has indeed slowed down. The figure was 2.5 percent in January and 2 percent in February. From April, the figure fell below 2 percent, and the CPI of December was only 1.5 percent. However, the figure was always above the "red line" of 1 percent. The overall 2014 increase in the CPI was 2 percent, which was within the normal range. In this sense, China shown no characteristic signs of deflation.

Last year's low prices had much to do with the slow growth of the global economy and low and ineffective demand. Judging from factors affecting price change, deflation is unlikely to happen this year.

Firstly, China still has large cash reserves. Currently, China's broad money supply is about 120 trillion yuan, which is twice GDP. Meanwhile, facing economic downward pressure, China is very likely to reduce the interest rate and reserve requirement ratio.

Secondly, pork price, which represents 3 percent of the CPI, is very likely to rise again. At one point last year, the pork price dived to 12 yuan per kilo. In the last two months, the pork price has remained stable at about 16 yuan per kilo. Such a low price cannot even compensate the feeding cost, so farmers' enthusiasm for raising pigs has been seriously dampened. If the number of reproductive sows is lowered this year, the pork price will take an upturn.

Thirdly, the cost of services keeps rising. Last November, the service charge of clothing processing rose 5.9 percent, the price of family and maintenance services rose 7.3 percent, and the price of education services rose 2.9 percent, all of which are much higher than the CPI. Pushed by the stubbornly rising cost of labor and other productive factors, such a trend is unlikely to reverse.

Fourthly, price reform is under way. The prices of power, gas, water and other daily utilities are in ladder price reform, which will to some extent raise prices .

At the same time, China is still facing the pressure of imported inflation. Although the US is quitting QE, the EU will obviously adopt its own version of QE soon. QE and its supporting measures will promote consumption in Euro zone and create more import demand. About one third of China's exports flow into the EU market. So, the EU's QE will objectively stabilize Chinese economy.

More importantly, China's economic restructuring has made new progress. As the national economy continues to do well, prices will maintain a suitable level.

To sum up, as the economic situation turns for the better, with proper measures, this year's price levels will remain stable on the whole.