China inflation slows in March

Consumer prices ruled lower than expected last month in China as the unappetising and widely televised spectacle of thousands of dead pigs floating upstream from Shanghai led to a sharp drop in prices.

According to the National Bureau of Statistics, consumer prices ruled 2.1 per cent higher in March than a year earlier, after ruling 3.2 per cent higher in February.

Pork, which is a staple of the Chinese diet has long been such a significant factor in the country's consumer price index that it exerts significant influence on overall inflation. Pork prices fell 5.5 per cent last month in China from a year earlier, according to the National Bureau of Statistics.

Factories and other producers were also faced with falling prices last month, with prices down 1.9 per cent in March from a year earlier, as against a year-on-year decline of 1.6 per cent in February.

''Meat prices slumped due to concerns about mysterious pig deaths and bird-flu contagion risk,'' Asia economists at Standard Chartered said in a research report.

Chinese policy makers have had to come to grips with two intertwined inflation related problems. Banks were allowed to engage in a large expansion of lending and off-balance sheet credit last autumn, in a bid to reverse economic slowdown.

The expansion of credit raised fears of inflation that had already pushed up real estate prices in recent months. In response the government renewed warnings about problems of housing affordability.

According to analysts, the slowing inflation would allow the central People's Bank of China to hold off tightening monetary policy further for the time being, boosting share markets. They warned though that problems remained for the economy.

China's consumer price index - a main gauge of inflation stood at at 2.1 per cent last month, the National Bureau of Statistics said, down from 3.2 per cent in February when prices shot during the Lunar New Year holiday.

According to analysts the easing CPI figure coupled with a 1.9 per cent fall in the producer price index, a leading indicator showed that the recovery in China remained fragile.

IHS Global Insight analysts Alistair Thornton and Ren Xianfang said in a research note that a surge in final demand rippling throughout the economy had not been seen.

"The recovery ... has been largely government-driven, and has been underpinned by property froth and rampant shadow finance ... This is not a healthy recovery."