China's inflation fall fails to dispel recovery doubts

 

China's inflation tumbled to 2.1 per cent last month as food price growth slowed, taking pressure off consumers but raising questions about the strength of recovery in the world’s second biggest economy.

The consumer price index 2.1 per cent increase in March was well below the 3.5 per cent target for the year and marks a significant decline on the 3.2 per cent jump recorded in February, when spending for the Lunar New Year holiday pushed prices up – taking inflation for the month to a 10-month high.

Analysts said that the declining inflation figures would leave Chinese policymakers scope to keep interest rates low. “Lower inflation will greatly ease investors’ concerns that the policymakers would begin to tighten monetary conditions,” said JPMorgan chief economist for China Haibin Zhu.

IHS Global Insight analyst Alistair Thornton added: “We have yet to see a surge in final demand ripple throughout the economy. This is not a healthy recovery.”

Month-on-month consumer prices fell by 0.9 per cent in March, which analysts said indicated declining consumption by customers in response to a government-led austerity drive.

Today’s Chinese figures pushed Brent crude oil above $105 (£68) a barrel, lifting it from an eight-month low.

The oil price was further boosted by concerns over increasing tension in North Korea and a stalemate in talks between Iran and Western nations, raising fears of a possible disruption of supplies from the Middle East.

Brent futures for May rose by 40 cents to $105.06, although analysts cast doubt on whether the rise would be sustained.

“With oil stocks so high, supply improving and the outlook for oil demand so uncertain, there seems to be little basis for a strong, sustained rally,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

 

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