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.
"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. 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 indexFood 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%.
"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."
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