Easing food prices, mild recovery cool China March inflation

Tue Apr 9, 2013 3:37am EDT
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By Nick Edwards and Xiaoyi Shao

BEIJING (Reuters) - China's annual consumer inflation cooled in March as food prices eased from nine-month highs and producer price deflation deepened, data showed on Tuesday, leaving policymakers room to keep monetary conditions easy and nurture a nascent recovery.

The National Bureau of Statistics' March inflation data reflected the tepid pace of the economic recovery that began late last year and is likely to reduce fears that monetary conditions could be tightened at an early stage in the recovery cycle.

The consumer price index showed an annual rise of 2.1 percent, well below the 2.4 percent market consensus from a Reuters poll of economists.

Producer prices dropped 1.9 percent year-on-year, broadly in line with the consensus forecast for a 1.8 percent fall, and a steeper fall than February's 1.6 percent.

"Lower inflation will greatly ease investors' concerns that the policymakers would begin to tighten monetary conditions," Haibin Zhu, chief China economist at JP Morgan in Hong Kong, told Reuters.

The CSI300 index of top Chinese shares listed in Shanghai and Shenzhen climbed around 1 percent following the data, while the China-sensitive Australian and New Zealand dollars also received a boost. China is major buyer of Australian and New Zealand exports.

Month-on-month consumer prices fell 0.9 percent versus the market consensus of a 0.6 percent drop, indicating restrained consumption triggered by a government-led internal austerity drive launched at the end of 2012 in a bid to cut down excessive banqueting and gift-giving that is often linked to corruption.

Much of the drop in the headline CPI was explained by softer food prices which economists say are normalizing after February's Lunar New Year seasonal spike, rather than reflecting any major impact from a bird flu outbreak and a pork scare after thousands of dead pigs were dumped in a Shanghai river in March.   Continued...

A woman pays for vegetables at a morning market in Beijing April 8, 2013. REUTERS/Kim Kyung-Hoon