China's March Inflation 'Slight Rise'... Will Interest Rate Cuts Accelerate? (Comprehensive)

March CPI Rises 0.7%, Below Forecast
Market Expects Central Bank Interest Rate Cut

China's Consumer Price Index (CPI) for March fell short of expectations due to declining food prices and slow demand recovery. The Producer Price Index (PPI) has been accelerating deflation for six consecutive months. Reflecting this trend, the market anticipates that the People's Bank of China will implement accommodative monetary policies such as interest rate cuts.

On the 11th, the National Bureau of Statistics of China announced that the March CPI rose 0.7% year-on-year. This is below both the previous month's 1.0% and the forecasted figure. Earlier, economic media Caixin had predicted that while service prices would show an upward trend, falling food prices would limit the overall CPI increase.

A retail store located in Shenzhen, Guangdong Province, China, is selling groceries. (Photo by Kim Hyun-jung)

By sector, food prices rose 2.4%, with fresh fruit jumping 11.5%, driving the overall upward trend. Pork and poultry eggs also increased by 9.6% and 7.8%, respectively. In contrast, fresh vegetables fell by 11.1%. Service prices rose by only 0.8%, but prices for airline tickets (37.0%), hotels (6.1%), transportation (5.9%), and travel (5.3%) increased due to surging demand from reopening. Prices for industrial consumer goods fell 0.8% due to declines in energy and automobile prices. Gasoline and diesel prices dropped by 6.6% and 7.3%, respectively.

The March Producer Price Index (PPI), released on the same day, declined 2.5% year-on-year, meeting expectations. The February PPI had fallen 1.4%. This marks the sixth consecutive month of negative PPI readings since October last year (-1.4%).

Considering the recent price trends, the market expects the central bank, the People's Bank of China, to cut interest rates. Zhang Ziwei, Chief Economist at Pinpoint Asset Management, told Bloomberg, "The economic recovery is progressing smoothly but is not strong enough to push prices higher," adding, "This suggests the economy is still below its potential, leaving room for further fiscal and monetary policy measures to stimulate growth."

Zhou Hao, Chief Economist at Guotai Junan, said, "The outlook for a policy rate cut seems to be gaining momentum following the inflation data," and added, "There is still ample room for monetary policy easing." Zhou further explained, "Authorities should assist homebuyers and real estate developers by lowering mortgage rates through banks."

The People's Bank of China had kept the Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, unchanged for seven consecutive months last month. The LPR is an average rate calculated based on the best lending rates to top clients from 18 designated banks, standing at 3.65% for one-year and 4.3% for five-year maturities.