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China's factory inflation rose faster than expected in March

CPI also up as Ukraine war and supply chain bottlenecks raise costs

Still-modest consumer inflation points to weak demand as Beijing's strict COVID control measures dent sentiment.   © Reuters

BEIJING (Reuters) -- China's factory inflation slowed but beat expectations in March, official data showed on Monday, as the country grapples with cost pressures caused by Russia's invasion of Ukraine and persistent supply chain bottlenecks.

The producer price index (PPI) increased 8.3% year-on-year, according to data from the National Bureau of Statistics (NBS), easing from 8.8% growth in February but beating a forecast for a 7.9% rise in a Reuters poll.

While the year-on-year PPI rise was the slowest since April 2021, the monthly increase of 1.1% was the fastest pace in five months.

China's consumer price index (CPI) inched up 1.5% year-on-year, the fastest pace in three months, after a gain of 0.9% in February and beating the 1.2% rise tipped by a Reuters poll.

The world's second-largest economy came under downward pressure in March with renewed COVID outbreaks and the manufacturing and service sectors reporting declines in activity.

Authorities have unveiled policies to support the economy, including greater fiscal spending and reductions in income tax for small companies.

China's cabinet on Wednesday vowed more support measures for consumption and investment. 

Against a year ago, food prices fell 1.5%, compared with a 3.9% decline in February, resulting in a drop of 0.28 percentage points in headline CPI.

The still modest consumer inflation points to weak demand as the sentiment in consumption was dented by Beijing's strict COVID control measures.

China reported 26,411 new asymptomatic cases for Sunday, more than 25,000 were in the financial hub of Shanghai, currently under a citywide lockdown.

Iris Pang, chief economist for greater China at ING, expects Shanghai's economy will shrink 6% this month alone if the current lockdown persists, equaling a 2% gross domestic product decline for the whole of China.

Most analysts expect China's central bank to lower borrowing costs, and cut reserve requirements for banks or lower interest rate to pump more cash into the economy.

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