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China factory gate prices rise by most in nearly three years as economic recovery quickens

·2-min read
FILE PHOTO: People look at fresh seafood in a supermarket in Beijing

BEIJING (Reuters) - China's factory gate prices beat analyst expectations to rise at their fastest annual pace since July 2018 in March in the latest sign that a recovery in the world's second-largest economy is gathering momentum.

China's producer price index (PPI) rose 4.4% in annual terms, the National Bureau of Statistics (NBS) said in a statement, far above a 3.5% rise forecast in a Reuters poll and up sharply from a 1.7% increase in February. Consumer prices also returned to inflation after two months of price falls.

It is the latest indicator to point to robust economic growth in the January-March quarter, after recent data showed Chinese manufacturing activity was strong last month.

"Booming domestic demand, high fuel prices and low base effects account for China's surprisingly high PPI inflation in March," said Zhaopeng Xing, an analyst at ANZ, in a note.

However, the People's Bank of China is unlikely to adjust its stance until the economy sees real improvement in the job market, said Xing.

China's central bank has rolled out a raft of measures, including cuts in interest rates and reserve ratios since early 2020 to support the virus-hit economy, but it shifted to a steadier stance as the recovery solidified.

Ting Lu, chief China economist at Nomura, said he expected annual PPI inflation to rise to around 6.0% mid-year and "moderate thereafter."

"Markets may become increasingly concerned about pressures from rising inflation on Beijing's policy stance, but we expect Beijing will stick to its 'no sharp policy shift' commitment," he added.

China's consumer price index (CPI) rose 0.4% from a year earlier in March, the statistics bureau said in a separate statement, beating a median forecast for a 0.3% rise in a Reuters poll and after falling 0.2% year-on-year in February.

Falling food prices, especially for pork, continued to drag on consumer inflation last month, according to a note from an NBS official released alongside the data.

China has set a modest growth target of above 6% for this year, but analysts widely expect the economy to expand more than 8% after 2.3% growth in 2020. That was the weakest full-year reading in over 40 years as China grappled with the fallout from the COVID-19 pandemic.

Beijing has warned that uncertainties related to the pandemic, which has claimed more than 3 million lives worldwide, continue to overshadow the economic outlook.

(Reporting by Gabriel Crossley; Writing by Se Young Lee; Editing by Ana Nicolaci da Costa)

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