CHINA’S producer prices fell less than expected in March while consumer inflation stabilized, a sign that strong deflationary pressures in the country’s industrial sector may be lessening.

    Some economists said receding worries over factory gate price declines might point to less aggressive monetary easing in the coming months. They have been watching how inflation evolves this year following a prolonged easing campaign by China’s central bank beginning in late 2014, which has boosted credit, but has yet to result in substantial price increases.

    The producer price index (PPI) in March fell 4.3 percent from a year earlier, extending their decline to a full four years.

    Economists said the slower fall in producer prices was driven by recovering global commodity prices and also the uptick in construction activity at home.

    “PPI has benefited from a pick-up in real estate and infrastructure investment and new orders from the government,” said Yang Zhao, Chief China Economist at Nomura Bank in Hong Kong.

    “Overall the data is a good combination for financial markets. CPI was flat and so there shouldn’t be much concern on policy tightening.”

    Consumer prices in March rose 2.3 percent, below a forecast 2.5 percent but similar to February’s rate of 2.3 percent. The prior month’s figure represented the fastest rise in more than a year but the increase was driven largely by sharp gains in food prices following an unexpectedly harsh winter.

    The consumer price index (CPI), a main gauge of inflation, shrank 0.4 percent in March from February, the National Bureau of Statistics said in a statement.

    National Bureau of Statistics (NBS) statistician Yu Qiumei attributed the inflation growth mostly to high vegetable and pork prices.

    Pork prices jumped sharply by 28.4 percent year on year, contributing 0.64 percentage points of CPI growth, while vegetable prices skyrocketed by 35.8 percent, accounting for 0.92 percentage points of CPI growth.

    Food prices soared 7.6 percent year on year while non-food inflation edged up 1 percent in March.

    Economists broadly agreed that stable consumer price gains around 2 percent were unlikely to deter further easing by the central bank, although some said the pace of easing might now be slower.

    “Today’s data suggest that the PBOC will be less aggressive in monetary easing, and we now see just one further cut of RRR (reserve requirement ratio) in 2016, instead of three,” ANZ said in a research report.

    But Julia Wang, Greater China Economist at HSBC in Hong Kong, noted non-food price inflation was still quite sluggish and there was still room for adjustments.

    “We still expect full-year CPI to be comfortably below the 3 percent target set by the central bank this year which means there should be ample room for monetary easing if needed.”

    A key factor supporting consumer prices, which have trended sideways around 1.5 percent year on year since late 2014, has been the relative strength of the labor market.

    However, recent data paints a mixed picture on conditions for China’s workers. While the official manufacturing purchasing managers’ index (PMI) for March showed job losses slowing, a separate private survey from Caixin showed deteriorating labor market conditions in both the manufacturing and service sectors.

    (SD-Agencies)