UBS UBS Group AG

BEIJING—Chinese consumer inflation in March held steady in March, helped by a strong rise in pork prices.

China's consumer-price index rose 2.3% in March from a year earlier, matching February's level, according to the National Bureau of Statistics. The rise in the key inflation gauge undershot a median 2.5% gain forecast by 14 economists in a survey by The Wall Street Journal. Prices tend to fall after the Lunar New Year holiday so the steady inflation level could take pressure off the central bank for now to reduce interest rates, economists said.

"Although CPI is below expectation, it's good for the mood since three months ago the market was worried about deflation and now inflation is the concern," said Macquarie Group Ltd. economist Larry Hu. "But I think policy easing will be less expansive than we thought a few months ago since growth concerns have eased."

China's producer-price index, a measure of prices at the factory gate, declined 4.3% in March from a year earlier, compared with a 4.9% drop in February, the statistics agency said. While the index has remained in deflationary territory for over four years—as China continues to have too many factories churning out goods there isn't enough demand for—the results were better than economists expected.

On Monday, the World Bank forecast growth in China of 6.7% this year and 6.5% in 2017, warning that debt continues to expand faster than economic growth as overcapacity weakens prices and investment momentum.

Steady consumer inflation in March was supported by food prices that remained relatively high after the Lunar New Year holiday, led by higher pork and vegetable prices. The food-price component of the index rose 7.6% on year in March, compared with 7.3% in February.

Pork prices rose over 24.1% year on year during the combined January-March period, official data show. According to Premise Data Corp., which tracks global food consumption, pork tenderloin prices reached over 80 yuan ($12.37) per kilogram in some supermarkets over the weekend.

Nonfood prices rose a mere 1% in March, the same pace as in February.

China faces something of a dilemma. While it wants to keep pork and other food affordable to stem the potential impact on social stability, it also welcomes some inflation, which helps companies service their debt and can bolster corporate earnings and demand.

In September 2011, after pork prices hit 30 yuan per kilogram, panic buying saw people line up overnight and even get into fights to buy inexpensive pork released by the government, said Dan Wang, an analyst with research group EIU Access China, author of a recent paper on the pork cycle. "People complain quite a bit when prices go up," she added.

In a quarterly survey by the central bank released late last month, 52.7% of consumers said consumer prices were "too high and unacceptable," up 1.7 percentage points from the previous quarter.

Song Fa, a 23-year-old technician, said recent rising food prices, particularly involving fruit and pork, are also reflected in restaurant prices. "Food is certainly more expensive now," he said.

China has set a goal this year of keeping consumer inflation below 3%, the same as last year. In recent years the actual rate, which was 1.4% last year, has come in well below Beijing's projected ceiling. UBS said it expects consumer prices to peak in the second quarter before inflation eases in the last half of the year to post a 1.9% rate in 2016.

Prices on the factory floor remained in negative territory in March for the 49th consecutive month, but fell at a less rapid rate as prices of steel, rubber and ferrous and nonferrous metals rebounded, according to the Commerce Ministry. But the Chinese economy continues to suffer from industrial price deflation and overcapacity.

Beijing recently announced plans to close up to 13% of steel capacity and lay off about 4% of steelworkers over the next several years, but analysts say the announced capacity cuts are a third to a half of what would be needed to eliminate excess capacity.

Liyan Qi contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

April 11, 2016 01:15 ET (05:15 GMT)

UBS (NYSE:UBS)
Historical Stock Chart
From Mar 2024 to Apr 2024

UBS (NYSE:UBS)
Historical Stock Chart
From Apr 2023 to Apr 2024