China's inflation rises marginally in March, food prices remain major drag

China's consumer inflation rose to 0.9 percent year-on-year in March, from 0.8 percent in the previous month, data released by the National Bureau of Statistics showed on Wednesday. The rise fell short of expectations of analysts polled by Reuters who had forecasted a 1.0 percent rise.

Food prices, the biggest component of the consumer price index (CPI), fell by 4.4 percent and remained the major drag. Meanwhile, non-food inflation inched up to 2.3 percent after rising 2.2 percent in the prior month. Costs for health care, housing, transportation and communication all were seen rising.

The government targets around 3 percent inflation for the whole year of 2017 and inflation is still a far below the government's target range. Month-on-month, consumer prices fell 0.3 percent following a 0.2 percent drop in February.

Still-modest consumer inflation and moderating producer prices will give policymakers at the People's Bank of China (PBoC) room to continue with their campaign to reduce risks in the financial system after years of debt-fueled stimulus.

ANZ expects another two 10-basis point hikes in the 7-day reserve repo rate and other medium-term rate hikes for the rest of the year, though analysts expect the PBOC to tread cautiously to avoid crimping economic growth.