China inflation misses Beijing target

Subdued demand and falling oil prices last month pulled Chinese inflation well below Beijing's target of "around 3 per cent" for this year.

China's consumer price index maintained a sluggish year-on-year pace of 1.4 per cent in March, according to the government's official figures. Forecasters had predicted the pace would decelerate to 1.3 per cent.

However, the bigger problem is at factory gates. Producer prices deflated for a 37th consecutive month in March, falling 4.6 per cent, versus -4.8 per cent in February.

The producer price index, often regarded as a leading indicator for consumer prices, has become ensnared in deflationary territory thanks to sliding domestic demand and chronic overcapacity in many sectors.

Fears of disinflation - and even, in some quarters, deflation - have prompted an easing of monetary policy in China as elsewhere in the world.

"Disinflation remains an issue in China, and is a sign that domestic demand is weak," said Moody's Analytics before the release. "House prices continue to decline across a majority of cities, and the drop in global oil prices has also lowered transport costs."

The People's Bank of China cut interest rates for the second time in just three months at the start of March, citing "historically low inflation" and the need to keep real interest rates low to boost slumping growth.

China's economy grew 7.4 per cent last year, the slowest pace in nearly a quarter of a century, and growth is expected to fall further this year.

Beijing is targetting annual gross domestic product growth of "around 7 per cent" for this year, down from "around 7.5 per cent" last year. The International Monetary Fund forecasts growth of 6.8 per cent this year.

Earlier this week their debt levels, the IMF warned that China could see a sharp contraction in the growth of potential output, as it tries to rebalance its economy away from investment and towards consumption.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation