China Inflation Eases More Than Expected; Producer Prices Fall Further

(RTTNews) - China's consumer price inflation slowed more than expected in March and producer prices continued to decline, reflecting the existence of deep deflationary pressures.

The consumer price index gained only 0.1 percent on a yearly basis in March, the National Bureau of Statistics said Thursday.

This was slower than the 0.7 percent rise in February and also weaker than economists' forecast of 0.4 percent increase.

Beijing aims to bring inflation to 3.0 percent in 2024, which seems highly unlikely to be achieved in the current situation.

Compared to February, consumer prices dropped 1.0 percent, which was double the expected decrease of 0.5 percent.

Core inflation that excludes food and energy prices halved to 0.6 percent in March from 1.2 percent in the previous month.

Another report from the NBS showed that producer prices slid 2.8 percent annually in March, as expected, following a 2.7 percent drop in February. This was the 18th consecutive month of decline.

Low inflation provides room for policy easing, ING economist Lynn Song said.

However, the People's Bank of China appears to be favoring utilizing reserve requirement ratio cuts over interest rate reductions as RRR cuts will not add yuan depreciation pressure, while a rate cut would worsen the already unfavorable yield spreads, the economist noted.

Capital Economics' economists said with policymakers directing credit to the supply-side of the economy, policy support are unlikely to resolve the investment-consumption imbalance behind China's low inflation.

They expect inflation to remain low below pre-pandemic norms for the foreseeable future and producer price inflation to stay in the negative territory.