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Consumer prices rise slower than expected
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Producer prices fall at fastest pace since June 2020
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Weak prices add to case for policy easing
(Adds details, chart and analyst comments)
BEIJING, April 11 (Reuters) - China's consumer inflation
hit an 18-month low and factory-gate price declines sped up in
March as demand stayed persistently weak, shoring up the case
for policymakers to take more steps to support the uneven
economic recovery.
In contrast to surging prices globally, China's retail and
producer inflation has remained anaemic as the consumer and
industrial sectors struggle to recover from their pandemic hit.
Analysts now think consumer inflation could fall short of
Beijing's official targets this year.
The consumer price index (CPI) rose 0.7% year-on-year, the
slowest pace since September 2021 and weaker than the 1.0% gain
in February, the National Bureau of Statistics (NBS) said on
Tuesday. The result fell short of the 1.0% rise tipped in a
Reuters poll.
"China's March inflation report suggests that the Chinese
economy is running a disinflation process, which points to
bigger room for monetary policy easing to boost demand," said
Zhou Hao, economist at Guotai Junan International.
The producer price index (PPI) fell 2.5% year-on-year, the
fastest pace since June 2020 and compared with a 1.4% drop in
February. The PPI has fallen for six straight months.
China's yuan hit a more-than-one-week low against the dollar on Tuesday morning following the data, as investors
stepped up bets domestic interest rates could be cut. Shanghai's
benchmark stock index fell 0.25%, reversing a slight
uptick in the opening.
Food price inflation, a key driver of CPI, slowed to 2.4%
year-on-year from 2.6% in the previous month. On a
month-on-month basis, food prices fell 1.4%.
That pushed the CPI down 0.3% from a month earlier after a
0.5% fall in February, dashing expectations of no change.
FALLING SHORT The government has set a target for average consumer prices in 2023 to be about 3%. Prices rose 2% on year in 2022. "We think consumer price inflation will rebound in the coming months as the labour market tightens again and will peak at 2.3% in early 2024," said Zichun Huang, China economist at Capital Economics. "But it will be well below the government’s ceiling of 'around 3.0%', and the increase in inflation will be far smaller than what was seen elsewhere when they opened up."
Policymakers have pledged to step up support for the
economy, which recorded one of its worst performances in nearly
half a century last year due to strict COVID-19 curbs.
Recent data showed China's economic rebound remained uneven
in March with the services sector seeing strong recovery but the
sprawling manufacturing sector losing momentum amid still-weak
export orders.
Producer prices will likely continue their downturn in the
coming period because of weak trade and slow recoveries in
consumption and real estate investment, said Bruce Pang, chief
economist at Jones Lang Lasalle.
"Policies need to prioritise consumption and continue to
step up efforts to expand domestic demand."
Import-dependent industries saw further price declines, with
falls in the oil and gas extraction speeding up to 15.7% from
3.0% in February, NBS said in a separate statement.
Producer prices were unchanged from a month earlier.
The country's central bank cut banks' reserve requirement
ratio in March to support an economy facing headwinds including
weak exports and the property downturn.
Beijing needs to "try every method" to stabilise exports to
developed countries, Premier Li Qiang said on Friday, warning
that the impact of the global slowdown on the domestic economy
remains a key concern.
Analysts see limits to China's policy support.
"The PBoC just cut the RRR by 25bp at the end of March.
However, Beijing still has no appetite to launch a massive
stimulus on concerns of distortions and financial risks,"
analysts at Nomura said.
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(Reporting by Liangping Gao and Ryan Woo; Editing by Sam
Holmes)
