04/08/2013 10:29 EDT | Updated 06/08/2013 05:12 EDT

China's March inflation eases, fueling questions about strength of recovery

BEIJING, China - China's inflation declined in March, easing pressure on consumers but fueling questions about the strength of recovery in the world's second-biggest economy.

Government data Tuesday showed consumer prices rose 2.1 per cent, down from the previous month's 3.2 per cent and well below the official target of 3.5 per cent for the year. Wholesale prices declined by 1.9 per cent compared with last year.

Mixed data show the world's second-largest economy is limping out of its deepest slump since the 2008 global crisis but more slowly than Chinese leaders want. Analysts say the rebound could be vulnerable to a downturn in investment or trade.

Economic growth rose to 7.9 per cent in the three months ending in December, up from the previous quarter's 7.4 per cent. Analysts say the recovery is being propped up by government spending and bank lending, while consumer spending is growing slowly.

Lower inflation will give policymakers "more room to manoeuvr" to stimulate growth if industrial production figures due out next week show activity weaker than expected, said Goldman Sachs economists in a report.

The decline suggests consumer demand is still lacklustre despite the growth rebound.

"We have yet to see a surge in final demand ripple throughout the economy," said IHS Global Insight analyst Alistair Thornton in a report. "This is not a healthy recovery."

Figures early in the year often are distorted by the Lunar New Year holiday. Inflation fell to 2 per cent in January, then spiked to a 10-month high in February as vegetable costs rose due to cold weather and families stocked up on gifts and food for banquets.

The government's growth target for the year is 7.5 per cent, above Western levels but well below China's double-digit rates of the past decade.

Chinese leaders say they want to nurture more self-sustaining growth driven by domestic consumer spending and reduce reliance on exports and investment.

Manufacturing accelerated in March but was weak, according to the China Federation of Logistics and Purchasing, an industry group. Its purchasing managers index rose to 50.9 from February's 50.1 on a 100-point scale on which numbers above 50 indicate an expansion.

Goldman also saw a possible inflation impact from newly installed President Xi Jinping's orders to Communist Party officials to cut back spending on banquets and other frills in an effort to mollify public anger about corruption.

"Lower consumer inflation was also likely helped by the anti-corruption campaign which tends to lower prices of dining out and overall food prices," said the bank's economists in a report.

In a reflection of intense interest in China's economy, the statistics bureau said its website was temporarily offline following Tuesday's inflation announcement when the number of visitors spiked to 20 times the normal level. The bureau said it was looking into how to improve its technology to prevent future outages.


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