BEIJING (Reuters) -China's consumer inflation cooled more than expected in March, while producer price deflation persisted, maintaining pressure on policymakers to launch more stimulus as demand remains weak.
Worrying deflationary pressures in the world's second-largest economy appear to be slowly easing, though a protracted property crisis is still weighing heavily on consumer and business confidence.
Consumer prices rose by a muted 0.1% in March from a year earlier, National Bureau of Statistics (NBS) data showed on Thursday, versus a 0.7% rise in February which was the first gain in six months and a 0.4% rise in a Reuters poll.
Data over the January-February period and factory surveys for March showing improving demand had been a relief for Chinese officials seeking to spur a feeble post-COVID recovery, but economists warned of Lunar New Year distortions.
"Seasonal effects definitely played a role - food prices rose sharply during the Chinese New Year in February and subsequently came back down," said Xu Tianchen, senior economist at the Economist Intelligence Unit.
"More broadly, the overcapacity issue is passing into prices in a way that will thwart the People's Bank of China's efforts to reflate the economy," Xu added. "Vehicle prices fell an annual 4.6%, which could suggest manufacturers are introducing deeper price cuts in the distribution and sales process."
Producer prices in March fell 2.8% year on year, widening a 2.7% slide the previous month and extending a year-and-a-half long stretch of declines. On a month-on-month basis, PPI fell 0.1%.
"Although consumer prices are no longer falling, rapid investment in manufacturing capacity is still weighing on factory-gate prices," said Julian Evans-Pritchard, head of China economics at Capital Economics.
In recent months China has rolled out a raft of incentives to spur household spending including easier car loan rules, but consumers remain cautious about big-ticket purchases amid worries about the sputtering economy and the weak job market.
Annual core inflation, excluding volatile food and energy prices, was at 0.6% in March, slower than 1.2% in February. The CPI fell 1.0% month-on-month, cooling from a 1% gain in February and worse than a 0.5% drop forecast by economists.
Reflating the economy
The People's Bank of China (PBOC) pledged earlier this month to support the growth of household incomes and meet reasonable credit demand from consumers while curbing "blind expansion" in industries with overcapacity.