China's consumer price index (CPI), the main gauge of inflation, grew 4.3 per cent year on year last month, moderating from 5.2 per cent in February as economic activities including transport and logistics gradually recovered after effective epidemic containment in the country, according to data from the National Bureau of Statistics.
On a monthly basis, consumer prices went down 1.2 per cent. Food prices, which account for nearly one-third of China's CPI, headed down 3.8 per cent last month.
In breakdown, grain and oil prices were stable, while vegetable prices fell 12.2 per cent over rising supplies in spring. Pork prices started to soften as government measures to boost supplies to mitigate the impacts of the African swine fever and the coronavirus epidemic took effect. Prices of the staple meat in China dropped 6.9 per cent from a month earlier. However, compared with the same period last year, food prices remained elevated due to the epidemic, rising 18.3 per cent year on year and contributing 3.7 percentage points of the index's yearly growth.
In the first quarter, the CPI went up 4.9 per cent year on year on average. As hoarding demand wanes and work resumptions quicken, supply and demand will become more balanced and overall inflation will keep stable, Wen Bin, chief researcher with China Minsheng Bank, said in a research note.
The data also showed China's producer price index, which measures inflation at the factory gates, fell 1.5 per cent year on year last month, widening from a 0.4 per cent drop in February.
Aside from dampening demand from the impacts of the epidemic, the recent rout in the international oil market, which incurred shocks to related industrial sectors, was another key driver for the price deflation.
Among major industries, prices for oil and natural gas extraction saw the fastest retreat in March, plunging by 21.7 per cent year on year.
Prices for the processing of oil, coal and other fuel slumped 10.6 per cent year on year, while those of chemical raw materials and chemical products manufacturing went down 5.3 per cent over one year ago in March.
Given headline consumer inflation is set to moderate further, Chinese policymakers will have more leeway in monetary policy and further cuts in banks' reserve requirement ratios (RRR) and benchmark deposit rates would still be necessary, according to Wen.
In the latest step, China's central bank on April 3 announced a decision to cut the RRR for small and medium-sized banks by 100 basis points in two phases, a move that is expected to unleash around 400 billion yuan (about 57 billion U.S. dollars) of long-term capital into the market.
