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Investing.com-- China consumer price index (CPI) inflation shrank more than expected in March, while a decline in producer price index (PPI) inflation continued as a long-running deflationary trend showed little signs of improvement.
CPI inflation shrank 1% month-on-month in March, more than expectations for a drop of 0.5% and reversing course from the 1% growth seen last month, data from the National Bureau of Statistics showed on Thursday.
CPI grew 0.1% year-on-year, missing expectations for growth of 0.4% and slowing substantially from the 0.7% seen in February.
While consumer spending saw some support in February on the Lunar New Year holiday, Thursday’s data showed that this boost was short-lived.
The outlook for China’s economy still remained dour as overall consumer spending remained stuck in nearly four-year slump. The country saw a sustained deflationary trend through the second half of 2023, as a post-COVID economic recovery largely failed to materialize.
This was particularly evident in weak factory gate prices, with PPI inflation falling 2.8% year-on-year as expected, worsening from the 2.7% contraction seen in February. The drop also showed PPI inflation falling for an 18th consecutive month.
The drop in PPI inflation comes despite some improvement in manufacturing activity over the past month, as shown by positive purchasing managers index data for March.
Sustained monetary stimulus from Beijing has so far provided only limited support to the Chinese economy, which is struggling with a prolonged slowdown in the property market- once a major growth engine for the country.
Weak economic conditions also suppressed consumer spending- another key driver of the Chinese economy- as consumers tightened their wallets in the face of increased unemployment.
Fitch Ratings cut its outlook on China’s credit rating to “negative,” citing increased risks from high government debt and slowing growth. The ratings agency also said that deflation posed a major risk to the Chinese economy.
