China’s Inflation Turns Positive; PPI Rises Most Since 2018

China’s consumer price inflation turned positive in March largely due to a rise in fuel prices and the factory gate inflation rose the most in more than two years driven by higher global commodity prices.

Consumer prices rose to 0.4 percent year-on-year in March, reversing a 0.2 percent drop in February, data from the National Bureau of Statistics showed on Friday. This was also faster than the expected +0.3 percent.

The government has set consumer price growth target of about 3 percent for this year.

After a 0.2 percent drop, food prices slid at a faster pace of 0.7 percent in March due to fall in pork prices in February. Meanwhile, non-food prices grew 0.7 percent.

Core consumer prices, excluding volatile food and energy, advanced 0.3 percent after staying flat in February.

On a monthly basis, consumer prices dropped 0.5 percent, in contrast to February’s 0.6 percent rise. Economists had forecast a 0.4 percent fall for March.

Looking ahead, consumer price inflation is forecast to rise to around 2 percent by the end of the second quarter, Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said.

Shifting pork price base effects and continued disruptions to pork supply from African Swine Fever will nudge up food inflation, the economist added.

Data showed that producer price inflation accelerated sharply to 4.4 percent in March from 1.7 percent in February. The latest factory gate inflation was the fastest since July 2018. Economists had forecast the rate to rise moderately to 3.5 percent.

Month-on-month, producer prices were up 1.6 percent in March.

Producer price rises are likely to broaden out in the coming months and push headline CPI back to more normal levels, economists at Capital Economics noted.

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