Investing.com — China’s consumer price index (CPI) inflation contracted more than expected in March, but producer price index (PPI) inflation contracted more than expected as the long-term deflationary trend showed little sign of improvement. continued to decline.
Data released by the Office for National Statistics on Thursday showed a 1% month-on-month decline in March, faster than an expected 0.5% decline and a reversal of last month’s 1% rise.
The increase was 0.1% compared to the same month last year, falling short of the expected 0.4% increase and significantly slowing down from February’s 0.7%.
February’s Lunar New Year holiday provided some support to consumer spending, but Thursday’s data showed the boost will be short-lived.
The outlook for China’s economy remains bleak as overall consumer spending has fallen to its lowest level in almost four years. The country experienced little economic recovery after the coronavirus outbreak, and the country continued to experience deflation until the second half of 2023.
This was particularly evident in the slump in factory gate prices, which predictably fell by 2.8% year-on-year, worsening from February’s 2.7% decline. This decline also marks the 18th consecutive month of decline in PPI inflation.
PPI inflation has declined despite some improvement in manufacturing activity over the past month, as shown by the positive data for March.
The Chinese government’s sustained financial stimulus has so far provided limited support to China’s economy, which has suffered from a prolonged slump in the real estate market, once the country’s main growth engine.
The economic downturn also curtailed consumer spending, another key driver of China’s economy, as consumers tightened their purse strings in the face of economic growth.
Fitch Ratings has downgraded China’s credit rating outlook to negative, citing increased risks from high government debt and slowing growth. The rating agency also said deflation poses major risks to China’s economy.
