Inflation rise hits hopes for monetary boost
Mainland inflation rose higher than market expectations last month due to food price increases, reducing expectations that Beijing will ease monetary policy to bolster economic growth.
The growth in the mainland's consumer price index (CPI) in the year to March reached 3.6 per cent, up from February's 3.2 per cent and exceeding forecasts of between 3.2 per cent and 3.4 per cent.
In the first quarter of the year the CPI grew by 3.8 per cent year on year, the National Bureau of Statistics (NBS) said yesterday.
The news helped to push the Shanghai Composite Index down 0.9 per cent to close at 2,285.78 yesterday, the lowest close since March 30.
'It's wrong to conclude that inflation pressures increased quickly based on the higher CPI rise in March than February,' said Lu Ting, chief China economist with Bank of America-Merrill Lynch.
Economists from JP Morgan Chase Bank said that they expected headline CPI, in year-on-year terms, to trend down again from April through to the third quarter.
'Overall, the central bank should be able to achieve the full-year four per cent inflation target,' the bank's economists said in a note after the release of the NBS data.
Qu Hongbin, chief economist with HSBC's Asia research division, said the rise was almost entirely caused by a rebound in food prices, especially those for fresh vegetables, which he believed was temporary.
Food prices rose 7.5 per cent year on year, pushing up the CPI year-on-year growth for March by 2.39 percentage points, while non-food prices increased 1.8 per cent year on year in March, the NBS noted.
Among the foods, fresh vegetable prices posted year-on-year growth of 20.5 percent, pushing up the CPI by 0.64 percentage points.
The month-on-month CPI growth reached 0.2 per cent in March, of which both the food prices and non-food prices rose by 0.2 per cent respectively.
Song Yu, chief china economist with Goldman Sachs, said the unexpected CPI figures were likely to raise concerns about a possible rebound in inflationary pressures, at least among some policymakers.
Still, Song also pointed out that the first negative year-on-year reading of the Producer Price Index (PPI) since November 2009 was also likely to make policymakers feel relatively comfortable with upstream inflationary pressures. The PPI fell 0.3 per cent from a year earlier, matching expectations, the NBS said in another statement posted on its website.
The decline in the PPI was the first since November 2009.
Lu said the data could limit the magnitude of the policy loosening that likely started in March as a result of the concerns of an excessive slowdown in activity growth. 'However, we believe it is unlikely to change the policy direction unless CPI inflation continues to hold up or even trend up,' Lu said.
Lu said that there was room to raise prices of fuel, power and other utilities in coming months.