China remains under deflationary pressure

China’s consumer prices rose by a weaker-than-expected 0.1 percent last month from a year earlier and industrial prices continued to slump by 2.8 percent in March, underscoring the deflationary pressures that remain a key threat to the economy’s recovery.

The March inflation rate released by the National Bureau of Statistics yesterday compared with a 0.7 percent gain in February and a median forecast of a 0.4 percent rise by economists.

Producer prices, which widened from a 2.7 percent slide the previous month, fell for an 18th straight month in March

“The price data clearly mirrors the weak domestic demand,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group, “The recent improvement in momentum is primarily export-driven.”

The People’s Bank of China pledged earlier this month to support the growth of household incomes and meet reasonable credit demand from consumers while curbing “blind expansion” in industries with overcapacity.

Some analysts believe the central bank faces a challenge as more credit is flowing to production than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy tools

This came as state-owned media reported that many small and medium-sized banks in China have started a new round of deposit interest rate cuts from April to control costs, with reductions seen in a range of 5 to 45 basis points.

However, Goldman Sachs and Morgan Stanley raised their outlook for China’s economic growth this year.

Goldman economists now see China’s 2024 growth forecast at 5 percent, in-line with Chinese policymakers’ target, versus 4.8 percent previously.

Morgan Stanley also lifted its 2024 growth forecast to 4.8 percent from 4.2 percent previously, citing better-than-expected export growth from resilient US demand and robust export volume.

In other news, the PBOC has recently vowed to enhance carbon trading markets along with other authorities, with plans including enriching related financial products, expanding the scope of market participants, and encouraging international institutions to issue yuan-denominated green bonds or invest in green bonds in China.