China's consumer prices fell for the second straight month in March while factory-gate deflation worsened, as an escalating U.S. trade war heightened worries about mounting piles of unsold exports that could drive domestic prices even lower.
The world's second-largest economy has gotten off to a bumpy start this year. A nascent pick-up in retail sales and robust expansion in factory activity have been offset by rising unemployment and deflationary pressures, fuelling calls for more stimulus.
The consumer price index (CPI) dropped 0.1% last month from a year earlier, National Bureau of Statistics data showed on Thursday. That was slower than February's 0.7% decline but missed a Reuters poll forecast for prices to remain flat.
"Deflationary pressures persisted last month and will almost certainly deepen over the coming quarters as it becomes more difficult for Chinese firms to export their excess supply," said Julian Evans-Pritchard, head of China economics at Capital Economics.
The weak data comes during a turbulent week for the global economy with financial markets roiled after sweeping U.S. tariffs against all its trading partners took effect.
While U.S. President Donald Trump delivered a partial reprieve on Wednesday by walking back some tariffs, his decision to continue ramping up levies on China has only intensified the trade war between the world's two largest economies.
CPI fell 0.4% month-on-month, against a 0.2% fall in February and missing an estimated 0.3% decline.
The producer price index declined 2.5% in March from a year earlier, the weakest reading in four months and faster than the 2.2% fall in February and a forecast 2.3% drop.
The accelerating factory deflation was due to falling international crude oil prices and "a seasonal downtrend in energy demand as winter heating in northern China ended", said NBS statistician Dong Lijuan.
Capital Economics' Evans-Pritchard said the PPI was set to fall further given recent commodity price declines and the incoming hit to exports, which would encourage some manufacturers to cut prices.
Core inflation, excluding volatile food and fuel prices, edged up 0.5% in March from a year earlier, reversing a 0.1% fall in June.
Consumption has been in focus this year with the net export contribution to growth projected to turn negative as Beijing imposes countermeasures against U.S. tariffs, putting China's GDP growth target of around 5% in some doubt.
"We expect fiscal policies to lead domestic demand expansion amid external shocks," Citi economists said, forecasting additional funding of 1 trillion yuan ($136.06 billion) to 1.5 trillion yuan mid-year.
They see "options of expansion in trade-in subsidies, childcare subsidies and support for low-income households all on the table."
Last month, China's financial regulator told lenders to relax consumer credit quotas and loan terms to support consumption.
"While policymakers have signaled a willingness to do more to support domestic demand, a lot of fiscal spending is still being devoted to expanding the supply side of the economy and it seems unlikely that consumption support will be sufficient to fully offset weaker exports," Capital Economics' Evans-Pritchard said.
($1 = 7.3499 Chinese yuan)
