China's subdued inflation leaves room for easing monetary policy
Consumer price index rose 1.4 per cent last month, a relatively modest increase that allows the central bank to further relax monetary stance
Inflation on the mainland held steady but remained subdued last month, giving room for the government to further ease policy to revive sluggish economic growth.
The consumer price index rose 1.4 per cent in March from a year earlier, unchanged from the gain in February and above market consensus for a rise of 1.3 per cent, the National Bureau of Statistics said yesterday.
Inflation held above the annual growth target of 2 per cent for the third month in a row, leaving room for the central bank to further ease its monetary stance amid weak economic activity.
Growth in gross domestic product in the first quarter slowed to 6.9 per cent year on year from 7.3 per cent in the previous three months, probably due to "a continued housing investment slump, slow profit growth, and the weak domestic and external demand recovery", Standard Chartered said in a report. Official figures are due on Wednesday.
The bank expected that in the coming months the central bank would cut interest rates by 25 basis points again and lower banks' reserve requirement ratio twice by a total of 100 basis points. More fiscal stimulus was likely to be introduced to spur growth, it said.
The People's Bank of China cut benchmark interest rates for the second time in three months on March 1, citing low consumer prices. In February, it trimmed the reserve requirement ratio by 50 basis points.
Central bank chief Zhou Xiaochuan suggested last month the central bank was still worried about disinflation pressure, as that would push up the actual debt burden for companies. He told the Boao Forum for Asia in Hainan the central bank should be vigilant against any downward price trend. "Inflation in China is also declining. We need to have vigilance on whether this may develop into some sort of deflation," he said.
The producer price index, the advanced indicator for inflation, fell 4.6 per cent from a year earlier in March, although it decreased only 0.1 per cent from February, thanks to stabilising commoditiy prices.
The key swing factor, economists say, is the pork price. Food prices, with a more than 30 per cent weight in the CPI, are easily influenced by pork's supply and demand. The meat is a staple for ordinary Chinese families. In March, pork prices climbed 2 per cent from a year earlier, the first positive reading in 15 months.
The Ministry of Agriculture data bolstered the odds for pork prices to rebound. The number of fertile female pigs fell 15.5 per cent from a year earlier in February to historical low levels, due to destocking and spread of disease, the ministry said last month.
