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China producer inflation picks up for first time in 9 months, eases deflation worries

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China's factory-gate inflation picked up for the first time in nine months in March, edging away from deflationary territory, in a fresh sign that government efforts to boost the economy may be starting to revitalise domestic demand.

[BEIJING] China's factory-gate inflation picked up for the first time in nine months in March, edging away from deflationary territory, in a fresh sign that government efforts to boost the economy may be starting to revitalise domestic demand.

Consumer inflation also quickened, jumping to the highest since October 2018 as pork prices soared due to a growing epidemic of swine fever, official data showed on Thursday.

The pick-up in producer inflation, while slight, will likely add to optimism that the world's second-largest economy is slowly starting to turn the corner, after recent surveys showed factory activity expanded for the first time in months.

But analysts urge caution, saying it will take a few more months of data and more policy support from Beijing to see if a recovery can be sustained.

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China's producer price index (PPI) in March rose 0.4 per cent from a year earlier, in line with analysts' forecasts in a Reuters poll and advancing from a 0.1 per cent increase in February, the National Bureau of Statistics (NBS) said.

Most of the gain was in mining, with prices in extraction rising 4.2 per cent on-year, up from 1.8 per cent in February. Drops in raw material prices also moderated.

But improvements may have been due more to changes in commodity prices than stronger demand. Prices of consumer durables fell for a second month, pointing to lingering weakness.

On a monthly basis, producer prices increased for the first time in five months. The index inched up 0.1 per cent, compared with a 0.1 per cent decrease in February.

The world's second-largest economy is growing at its weakest pace in almost three decades amid weaker domestic demand and a year-long trade war with the United States. Multi-year campaigns to curb debt risks and pollution have deterred fresh investment.

In response, Beijing plans more spending on roads, railways and ports, which is expected to push up demand for and prices of construction materials. Last month, the government announced nearly 2 trillion yuan (S$402.3 billion) in additional tax cuts to ease the pressure on corporate balance sheets.

Cuts in value-added tax (VAT) that kicked in on April 1 have already led authorities to reduce prices for electricity and natural gas. Retail gasoline and diesel prices are to be reduced as well.

A growing number of companies ranging from Apple Inc to BMW have lowered prices for their products following the tax cuts.

SWINE FEVER DRIVING UP PORK PRICES

The consumer price index (CPI) in March rose 2.3 per cent from a year earlier, a five-month high, largely due to higher pork prices as the spread of African swine fever prompts farmers to cull their herds.

That was more than a 1.5 per cent increase in February but just below market expectations for a 2.4 per cent rise.

Pork prices rose 5.1 per cent in March from a year earlier, the first increase after a 25-month declining streak.

On a month-on-month basis, CPI rose 1.2 per cent.

Some analysts forecast pig production in China, which eats about half of the world's pork, will fall by around 30 per cent in 2019, which would send meat prices soaring.

But economists say the central bank is unlikely to overreact to a food price spike if it appears temporary and core inflation, which strips out volatile energy and food prices, remains steady.

Non-food consumer inflation was up 1.8 per cent on-year, just a touch more than February.

REUTERS