The producer price index rose 3.1 per cent in March from a year earlier, below a 3.7 per cent gain in February, the National Statistics Bureau said, partly reflecting a high-base effect from last year.

China’s factory gate inflation has now softened for five months in a row, supporting the view that a slowdown in the world’s second-largest economy is inevitable, hurt by rising borrowing costs and a cooling property market on the back of Beijing’s crackdown on debt risks.

“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,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

Analysts polled by Reuters had expected March producer inflation would moderate slightly to 3.2 per cent. On a month-on-month basis, the PPI fell 0.2 per cent versus 0.1 per cent decline in February, as the months-long smog war that led to supply constraints and an uptick in factory prices tapered off.

Gains in raw material prices slowed to 5.1 per cent in March from 5.9 per cent the month before.

The softer factory gate inflation points to further pressure on profits for China’s industrial firms after earnings grew at their quickest pace in six years in 2017. Profits at industrial firms picked up pace in the first two months of the year from December but still lagged growth for the whole of 2017.

The consumer price index rose 2.1 per cent from a year earlier, well below expectations of 2.6 per cent and slowing from February’s gain of 2.9 per cent, due to seasonal declines in food, transport and tourism prices.

“Despite the downward surprise for CPI, mostly due to a correction of food prices after the holiday, the overall economy remains robust,” said Zhang Yi, a Beijing-based analyst with Capital Securities.

On a month-on-month basis, the CPI declined 1.1 per cent, from a 1.2 per cent rise in February. The core consumer price index, which strips out volatile food and energy prices, rose 2 per cent in March, slowing from 2.5 per cent in February.

“For now, there’s no sign of China exporting inflation to the world,” said Li Wei, a senior economist at Standard Chartered in Shanghai, who predicted both PPI and CPI would stabilise in the range of two per cent to three per cent in the second half of 2018. “Policymakers won’t focus on inflation this year, instead they’ll prioritise tasks such as cutting leverage.”

While the tit-for-tat tariffs between China and the United States have fuelled worries about the inflation outlook, few expect any strong upside pressure over the year.

“Due to changes in overseas economic environment and adjustment in domestic demand, prices will experience some fluctuations,” the statistics bureau said in a statement accompanying the data release. “Still there are foundations for prices to remain stable overall in the short term.”

A researcher at China’s National Development and Reform Commission said this week that Beijing’s proposed tariffs on US soybeans and pork will have limited impact on consumer price inflation.

Analysts are also still forecasting broad price pressures to ease as a slowdown in credit growth, led by Beijing’s deleveraging campaign, is feeding through to an overall softening in economic activity.

China’s central bank governor Yi Gang said last month he expected consumer inflation pressures to be mild this year and that producer price increases will slow down.

Nomura analysts said in a research note that a bounce in producer prices is possible in the second quarter. However, they expect the downtrend to resume thereafter “due to the outlook of weakening investment demand, given a cooling property market and already high financing costs”.

Additional reporting by Bloomberg