China's latest inflation numbers are not exactly what traders were looking for, but if early reaction is any guide, the negative impact on China funds like FXI ( quote ) and stocks traded on Wall Street will be minimal.

While China was previously the greatest and most powerful example of falling emerging markets inflation, tonight's print of 4.5% annualized consumer inflation does the market no favors -- and Shanghai is down about 0.33%.

Consensus was for a deeper drop from December's 5.4% inflation rate to 4.1%, close to Beijing's stated comfort zone and low enough to encourage monetary policy officials to loosen their long campaign of clamping down on lending activity.

More ominously, food prices surged 10.5% on an annualized basis. Food and housing have been the primary pain points for the Chinese government, since out-of-control inflation in either area would subject hundreds of millions of citizens to hunger, homelessness or both.

The good news is that producer prices -- seen as a leading indicator of price pressure deeper down in the economic supply chain -- actually dipped 0.1% in January compared to December. Economists had steeled the market to expect prices to at best remain flat, so the decline is welcome.

Here too, the question is whether Beijing will read the deflation in wholesale prices as a signal that growth has slowed to the point where new stimulus spending is required.

To some, deflation is the most destructive enemy any economy can face. But if Beijing fires up the printing presses like its counterparts in Washington and London, it may only depress the buying power of the yuan and stretch Chinese budgets beyond the breaking point.

In the meantime, between double-digit food inflation and a lack of conclusive signs of a recession underway, the government may be content to wait.

No good news for traders here, but perhaps no bad news either.