China’s Jan 2010-11 Consumer Inflation Lower. By manipulation? Market answer Tuesday.

China’s NBS site delivering “Server Too Busy” errors right now. Reminiscent of early crisis days when S&P servers started crashing on Case Shiller Home price release days. Anyway, consumer prices came in at +4.9% versus expectations of +5.3% and last month’s year-over-reading of 4.6%. And producer prices came in at +6.6% versus expectations of 6.4% and last month’s reading of 5.9%.

Headlines like this will make people think all’s well. But lower inflation in China is of questionable credibility for three reasons: (1) Chinese food prices are spiking, and (2) China is tinkering with data to decrease weighting of food prices in CPI, and (3) rising producer prices often translate down into higher consumer prices later. More on this last point as we cover U.S. inflation releases this week, and more on rate market reaction tomorrow. Despite headline interpretation of China CPI tonight, rates rise still likely this week.