China inflation steady, but analysts still expect easing

China inflation remains on downtrend: Pro
China inflation remains on downtrend: Pro

China's consumer inflation held steady in March, but wholesale prices remained entrenched in deflation, signalling a favorable environment for further government stimulus.

The consumer price index (CPI) rose 1.4 percent on year, above expectations of a 1.3 percent rise predicted in a Reuters poll and following a 1.4 percent rise in February.

Wholesale prices, or the producer price index (PPI), fell 4.6 percent in March, better than the average forecast of a 4.8 percent decline, and after dropping 4.8 percent in February.

"In the last several months, disinflation has been a major concern. Today's data is good news in that the CPI is staying stable, but our expectations is the CPI will continue to move downwards in the next 2-3 months," Zhu Haibin, chief China economist and head of greater China economic research at J.P Morgan told CNBC.

"In terms of policy response, we still expect further easing," he said.

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Other analysts agreed: "Consumer price inflation held steady in March but we expect a drop in food price inflation to pull it lower over the coming months," Julian Evans-Pritchard, China economist at Capital Economics, said in a note.

"Although inflation is likely to remain in positive territory, a further fall would be consistent with our forecast that the People's Bank of China will carry out additional policy easing this quarter partly in response to deflation fears," he added.

Markets were mixed in early trading after the data were released. The Shanghai Composite was down 0.5 percent, while the Hang Seng index was 1.4 percent higher.

A plunge in oil prices, weak consumption and a slowing property sector have driven prices lower in recent months, even as China's economy braces for slower growth this year.

Beijing last month set a growth target of around 7 percent for this year. China's economy expanded 7.4 percent in 2014, its slowest pace in 24 years.

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The consumer price index target was set at around 3 percent for this year. Annual consumer inflation was 2 percent in 2014, well below the government's target of 3.5 percent.

The People's Bank of China has injected monetary stimulus three times since November – by the way of two interest rate cuts and reducing the reserve requirements of major banks – in a bid to support growth.