China CPI misses forecasts in March, but factory gate prices register first rise since 2013

Inflation pressures in China were slightly more muted than expected in March, but analysts drew comfort from a lower pace of declines in factory gate prices.

For March, consumer prices in Asia’s largest economy were flat in month-on-month terms, but rose at a 2.3% year-on-year clip.

Economists had been expecting a print of 2.4% year-on-year.

“CPI for the month of March has printed at +2.3% yoy which was a smidgen below expectations (of +2.4%) but flat on the prior month which was then the highest since July 2014 and will likely provide for some comfort that the data is stabilising,” said Jim Reid at Deutsche Bank in a research note sent to clients.

Non-food inflation was steady, rising by 1.0% year-on-year, with small rises evident in most components amid a sharp drop in transportation prices, following the Chinese New Year holiday.

In parallel, food price inflation moved up from a pace of 7.3% year-on-year to 7.8%, as inflation in pork prices picked up from a 25.4% year-on-year clip to 28.4%.

Going forward, Julian Evans Pritchard at Capital Economics said he expected pork price inflation to begin to “ease before long” which would compensate for positive base-effects from the drop seen in oil prices in the second half of 2015 and keep a lid on the country’s CPI.

“The upshot is that we don’t expect inflation to become a constraint on policy in the near future,” Evans-Pritchard said.

Producer prices record first rise since 2013

Factory gate prices on the other hand came in ahead of forecasts, declining at a 4.3% year-on-year pace, which was better than February’s drop of 4.9% (consensus: -4.6%).

Producer prices increased 0.5% month-on-month - their first gain since 2013.

Deflation in global commodity prices continued to weigh on the process of industrial inputs, which accounted for 75% of the index.

“We aren’t overly concerned by this since with the price of domestic goods holding up better, many firms should actually benefit from these lower input costs. In any case, with commodity price deflation now easing, producer prices are set to fall at a slower rate going forward,” Julian Evans-Pritchard at Capital Economics said.