CHINA’S producer prices swung back into deflation territory in February as the COVID-19 epidemic braked economic activity, raising the prospect of more policy stimulus even as consumer inflation stayed elevated on high food costs.

The government has rolled out a raft of measures to cushion the blow from the health crisis amid fears of widespread job losses but analysts don’t expect consumer inflation near eight-year highs to be a major hurdle for policymakers.

The producer price index (PPI) fell 0.4 percent in the year to February, National Bureau of Statistics data showed yesterday, as strict containment measures to curb the spread of the virus caused severe disruptions to the flow of goods and people throughout the economy.

Analysts had expected PPI to fall 0.3 percent year on year. Prices rose 0.1 percent in January after six months of declines.

“I think the decline will deepen due to weaker oil prices. The shock from the COVID-19 and collapse of oil prices have overshadowed the positive restocking sentiment on the back of improving U.S.-China trade talks,” said Tommy Xie, China economist at OCBC Bank in Singapore.

China implemented large-scale quarantine measures and limited production at factories to contain the contagious disease, which has infected more than 80,000 people and claimed over 3,000 lives on the Chinese mainland alone.

The outbreak, which began late last year, likely halved China’s economic growth in the first quarter compared with the previous three months, triggering expectations for more interest rate cuts, according to the latest Reuters poll.

The People’s Bank of China has ramped up policy support for the economy and eased borrowing costs for companies hardest hit by the outbreak. More easing steps, including further cuts in banks’ reserve requirements, are widely expected.

“Declining core inflation and deepening factory-gate deflation will increase pressure on the central bank to ease monetary conditions further,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a research note.

Chinese policymakers have signalled that the government will continue to roll out fiscal and monetary steps in the coming weeks to nurse the economy back to health and have urged most parts of the country to resume business activity. (SD-Agencies)