AsianFin -- China's consumer prices dropped for the second month in a row in March, while factory-gate deflation worsened, as the intensifying trade war with the U.S. increased concerns over growing stocks of unsold exports. 

The world's second-largest economy has faced a rocky start to the year. Although there was some improvement in retail sales and robust growth in factory activity, these were offset by rising unemployment and persistent deflationary pressures, prompting calls for further economic stimulus.

According to data released by China's National Bureau of Statistics (NBS) on Thursday, the Consumer Price Index (CPI) fell by 0.1% in March compared to the same month last year. This decline was less severe than February’s 0.7% drop, but it still missed analysts' expectations.

The weak data came amid a turbulent week for the global financial markets rattled by the implementation of sweeping U.S. tariffs on its trading partners. Although U.S. President Donald Trump offered some relief on Wednesday by scaling back certain tariffs, his decision to continue increasing levies on China has only escalated the ongoing trade conflict between the world’s two largest economies.

On a month-to-month basis, CPI fell by 0.4% in March, deeper than February’s 0.2% drop and missing the predicted 0.3% decline.

Meanwhile, the Producer Price Index (PPI) dropped by 2.5% in March from a year earlier, the steepest fall in four months. This was a sharper decline than February’s 2.2% drop and the 2.3% decrease expected by analysts. The worsening factory deflation was attributed to falling international crude oil prices and a seasonal decline in energy demand following the end of winter heating in northern China, according to NBS statistician Dong Lijuan.

Core inflation, which excludes volatile food and fuel prices, rose by 0.5% in March compared to the previous year, reversing a 0.1% decline in June.

This year, consumption has become a central focus as China's net export contribution to growth is expected to turn negative due to countermeasures against U.S. tariffs. 

Economists at Citi forecast that fiscal policies will play a key role in boosting domestic demand, particularly in response to external shocks. They predict additional funding of between 1 trillion yuan ($136.06 billion) and 1.5 trillion yuan by mid-year. Possible measures include expanding trade-in subsidies, offering support for low-income households, and increasing childcare subsidies.

In March, China’s financial regulators urged lenders to relax consumer credit quotas and loan terms to help stimulate consumption.

($1 = 7.3499 Chinese yuan)