China inflation data keeps policy bias on growth

Mon Apr 9, 2012 3:35am EDT
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By Koh Gui Qing

BEIJING (Reuters) - China's annual inflation rate jumped more than expected in March to 3.6 percent as food prices remained volatile, but economists believe price pressures will moderate over the rest of year, giving Beijing the flexibility to ease monetary policy to support growth.

Expectations that a cooling economy has eclipsed inflation as the government's biggest near-term worry were reinforced by surprisingly soft producer prices, which fell 0.3 percent from a year ago, sparking concerns this indicated weakening demand.

Analysts said Monday's price data suggested China's inflation is set to moderate rather than slow dramatically in coming months, and that Beijing will likely meet its 2012 inflation target of 4 percent even as it slowly loosens policy.

"Nothing in this (March) number looks like it is pushing me away from the comfortable view that inflation is on a downtrend," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters.

"The overall trend is that food is going to be dragging down the consumer price index over the course of the entire year," he said.

Economists polled by Reuters had forecast China's consumer inflation to run at 3.3 percent in March from a year ago, compared with February's 3.2 percent, while producer prices were seen easing 0.2 percent.

Falling producer prices are at odds with a pair of Purchasing Managers' Index (PMI) surveys published earlier this month that showed factory inflation quickening on higher fuel and raw material costs.

They also jar with China's rising minimum wages, which Beijing aims to increase 13 percent a year for the next five years, to the anguish of employers who complain of thinning profits.   Continued...

A customer reacts as she looks at a price tag at a supermarket in Hefei, Anhui province, April 9, 2012. China's annual inflation rebounded sharply in March to 3.6 percent, driven by rising food prices, data showed on Monday, surprising investors who had bet on cooling price pressures to give Beijing room to ease monetary policy. REUTERS/Stringer