Consumer inflation is mild in March as producer prices cool

China’s consumer inflation remained mild in March, rising only slightly month-onmonth, easing concerns of a possible jump in inflation partly from increases in producer prices making their way through the economy.

China’s consumer price index rose by 0.90 percent in March, up only 0.10 percentage points from 0.80 percent in February, the National Bureau of Statistics said on Wednesday. Falling food prices helped keep consumer inflation in check, the agency said.

“The March reading of the CPI will reverse market expectations (for higher consumer inflation),” said Jiang Chao, analyst of Haitong Securities. “In April, consumer inflation may rise by 1.1 percent yearon-year and remain stable.”

Consumer inflation is markedly lower than it was a year ago, in March 2016, when it was 2.3 percent.

Jiang said the inflation fears resulted from a surge in recent months in prices of commodities, such as steel products and products used to make steel, partly resulting from supplyside structural reform that has reduced supply.

For the first time in over half a year, China’s producer price index cooled. The PPI rose by 7.6 percent in March year-onyear, down from 7.8 percent in February, the highest in nine years. Analysts said the cooling signals stable improvement in fundamentals led by such sectors as steelmaking and coal mining.

Jiang also said industrial product prices are not directly channeled into the consumer market, so would push up consumer inflation only modestly. Deleveraging in the financial sectors also will dampen demand, meaning consumer inflation may not be a major challenge this year, he said.

Consumer inflation was mild in March mainly thanks to falling food prices, according to an NBS statement. Food prices, the largest portion of the CPI basket, dropped by 1.9 percent over the previous month. Vegetable prices dropped the most — by 7.9 percent.

Healthcare, housing, transportation and communications costs rose, NBS said.

The low CPI reading in March precludes the possibility of significant monetary policy tightening, said Ren Zeping, chief analyst of Founder Securities. “It is not necessary (for China) to adopt major policies to tighten its monetary stance.”

Ren also said that the slight easing in PPI growth in March is compatible with a stabilizing economy. “PPI remains at high levels, despite its fall in March,” he said. “Supply is being reduced and demand is rising, which will combine to lead to recovering corporate profits.”

Despite the current adjustment cycle, Ren said, if current trends continue, growth prospects remain promising.