Cooling inflation points to economic slowdown in China

Producer and consumer inflation cooled sharply in March, according to the latest Chinese official data, which Reuters suggests could probably indicate that demand is ebbing in the Chinese economy.

The producer price index (PPI) was up 3.1% year-on-year in March, a 17-month low and the fifth consecutive monthly slowdown. The consumer price index, meanwhile, rose 2.1% year-on-year, well below the 2.6% rise predicted by Reuters’ poll of economists.

Reuters says that the softening inflation is likely due to the Chinese government’s ongoing campaigns to crackdown on environmental pollution and rein in financial risk, which many analysts expect to impact economic growth in 2018. The surprisingly robust growth during January and February may have been due to the rush of consumption ahead of the Chinese New Year holiday.

“With the anti-pollution campaign, which pushed up prices by disrupting supply, now unwinding, the impact of weaker demand for industrial goods is becoming more apparent in the PPI data,” Julian Evans-Pritchard, senior China economist at Capital Economics, told Reuters.