China’s consumer inflation slowed in March despite a pickup in economic activity, while producer prices contracted further.

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The consumer price index rose 0.7 percent last month from a year earlier, the National Bureau of Statistics said Tuesday, down from 1 percent in February and missing economists’ expectations for it to stay flat in a Bloomberg poll.

Producer prices dropped 2.5 percent in March, following a 1.4 percent decline in the previous month and in line with economists’ expectations.

The figures suggest domestic demand has been weak even though the economy is recovering post-Covid. More supportive policies may be needed for the consumption rebound-led recovery to be sustained, as household sentiment for income and jobs has remained below pre-pandemic levels, while exports are falling and uncertainties are rife in the property market despite some improvement.

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Consumer prices have been well below the government’s target of around 3 percent this year, meaning the government has room to add monetary stimulus if needed. Bloomberg Economics analyst David Qu forecasts the People’s Bank of China will cut its one-year rate by 10 basis points this quarter.

The deepening in industrial deflation reflected the impact of a slump in oil prices last month and a high comparison base with a year ago, when energy costs spiked after the war in Ukraine began. The falling factory prices could add further pressure on industrial companies that have seen profits plunge.

The Chinese government has been vigilant against price changes in key commodities, taking several measures this year to ensure stability. The authorities have bought pork for reserves in a bid to shore up the prices, urged futures companies not to exaggerate iron ore price increases, and are concerned about the rapid surge in sugar costs.

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