Chinese inflation eases in March

A drop in food prices as well as travel costs were behind the fall in consumer prices last month
AFP

Beijing (AFP) – China’s factory gate inflation fell in March for the fifth consecutive month, data showed Wednesday, with analysts pointing to a wind-down in a government anti-pollution drive.

With China the world’s top exporter, the drop in prices companies pay for goods — which also came with a fall in consumer prices — could dent the knock-on effects for global inflation as many governments struggle to reach their own targets.

The producer price index — a key barometer of the industrial sector — dipped to 3.1 percent last month, from 3.7 percent in February, the China’s National Bureau of Statistics (NBS) said. It was the lowest reading since late 2016 and well off the 3.3 percent tipped in Bloomberg News.

Prices had been rising last year on the back of restrictions placed on factories by Chinese authorities to curb air pollution, in addition to separate government efforts to slash excess industrial capacity.

But Julian Evans-Pritchard of Capital Economics wrote in a research note: “With the anti-pollution campaign – which pushed up prices by disrupting supply – now unwinding, the impact of weaker demand for industrial goods is becoming more apparent in the PPI data.” 

He added: “Cooling price pressures will open the door to monetary easing this year.”

The consumer price index — a main gauge of retail inflation — hit 2.1 percent, against 2.9 percent in February, and well short of the the 2.6 percent forecast in the Bloomberg News survey.

Food prices the main cause of the drop, the NBS said, while travel costs also sank following the Chinese New Year holidays.

“Although consumer price inflation fluctuated to some extent, it is quite mild” in the first quarter, the NBS wrote.

Li Wei, a senior economist at Standard Chartered in Shanghai predicted CPI will stay in a band of two to three percent in the second half of this year. The government’s target is “around three percent”.

“For now, there’s no sign of China exporting inflation to the world,” Li told Bloomberg News. “Policy makers won’t focus on inflation this year, instead they’ll prioritize tasks such as cutting leverage.”

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