A worker cuts the scrap metal at a factory in Dalian, Liaoning province, Dec 9, 2014. [Asianewsphoto by Liu Debin]

BEIJING - China's producer price index (PPI) posted its steepest fall in more than two years in December amid a slump in global oil prices and weak domestic demand.

The factory gate price, which measures inflation at the wholesale level, dropped 3.3 percent year on year in December, the National Bureau of Statistics (NBS) said on Friday.

PPI dropped 2.7 percent in November, 2.2 percent in October, 1.8 percent in September and 1.2 percent in August.

On a monthly basis, PPI contracted 0.6 percent in December, a slight acceleration from November's 0.5 percent fall.

Yu Qiumei, a senior statistician with NBS, attributed the drop to the lower prices of refined oil; oil and natural gas; and chemicals, which contributed to a combined 0.4 percentage point fall in last month's PPI reading.

In 2014, the country's PPI fell 1.9 percent year on year.

China's consumer prices grew 2 percent in 2014 from a year earlier, well below the government's 3.5 percent target set for the year.

Deflation 'may force central bank's hand'

Further easing in consumer inflation and accelerating industrial deflation in November reflect stagnation in the world's second-largest economy, and that may push the central bank to cut banks' required reserve ratios as a means of easing liquidity and stabilizing growth, market observers said on Wednesday.

They said that China's top leaders may discuss a reduction in the 2015 Consumer Price Index target to 3 percent, from 3.5 percent this year, during the Central Economic Work Conference in Beijing. A statement will be issued when the meeting ends on Thursday.

The comments followed a report by the National Bureau of Statistics, which said that the CPI edged down to 1.4 percent year-on-year in November from 1.6 percent in October, the lowest level since December 2009.