China's consumer prices rise for 2nd month, factory deflation persists

Persistent declines in factory-gate prices and export prices, meanwhile, have added to tensions with China's biggest trading partners

China's consumer inflation cooled more than expected in March, while producer price deflation persisted, maintaining pressure on policymakers to launch more stimulus as demand remains weak.
 

Worrying deflationary pressures in the world's second-largest economy appear to be slowly easing, though a protracted property crisis is still weighing heavily on consumer and business confidence.
 

Consumer prices rose by a muted 0.1 per cent in March from a year earlier, National Bureau of Statistics (NBS) data showed on Thursday, versus a 0.7 per cent rise in February which was the first gain in six months and a 0.4 per cent rise in a Reuters poll.
 

Data over the January-February period and factory surveys for March had been a relief for Chinese officials seeking to spur a feeble post-COVID recovery, but economists warned of Lunar New Year distortions.

"Seasonal effects definitely played a role - food prices rose sharply during the Chinese New Year in February and subsequently came back down," said Xu Tianchen, senior economist at the Economist Intelligence Unit.
 

"More broadly, the overcapacity issue is passing into prices in a way that will thwart the People's Bank of China's efforts to reflate the economy," Xu added. "Vehicle prices fell an annual 4.6 per cent, which could suggest manufacturers are introducing deeper price cuts in the distribution and sales process."

Factory-gate prices fell 2.8 per cent in March from a year earlier, with the producer price index (PPI) widening a 2.7 per cent slide from the previous month and extending a year-and-a-half long stretch of declines. On a month-on-month basis, the PPI fell 0.1 per cent.
 

"Although consumer prices are no longer falling, rapid investment in manufacturing capacity is still weighing on factory-gate prices," said Julian Evans-Pritchard, head of China economics at Capital Economics.
 

In recent months China has rolled out a raft of incentives to spur household spending including easier car loan rules, but consumers remain cautious about big-ticket purchases amid worries about the sputtering economy and the weak job market.
 

Earlier this month, China's central bank vowed to strengthen efforts to expand domestic demand and boost confidence.
 

Core inflation, excluding volatile food and energy prices, in March was at 0.6 per cent from a year earlier, slower than 1.2 per cent in February. The CPI fell 1.0 per cent month-on-month, cooling from a 1 per cent gain in February and worse than a 0.5 per cent drop forecast by economists.
 

"Interestingly, CPI inflation surprised on the upside in the U.S. and downside in China," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
 

"This indicates the monetary policy stances in these two countries may continue to diverge as well, hence the gap of interest rates in these two countries will likely persist," he added.