Beijing (Financial Times) — Chinese consumer inflation rebounded slightly in March leaving policy makers less room to ease monetary conditions to prop up the slowing economy even though persistent price rises appear largely under control.

The benchmark consumer price index increased 3.6% last month from a year earlier, mostly as a result of higher food and energy prices, according to government figures released on Monday.

That was higher than the 3.2% increase in the index in February, but well below January’s 4.5% rise and also lower than the average reading of 3.8% for the first three months of the year. February’s low reading was mainly due to the distorting effect of the Chinese Lunar New Year holiday, which came unusually early this year, and analysts said inflation remains a concern to officials, who are wary of loosening policy too soon.

“We think that today’s CPI inflation number is unlikely to lead the [central bank] to ease monetary policy soon,” said Liu Ligang, an economist at ANZ bank. “We believe that [its] policy outlook will continue to be biased towards caution.”

China’s producer price index turned negative in March for the first time since November 2009, dropping 0.3% from a year earlier, in a sign that consumer inflation will also continue to decline gradually.

Even so, the government remains alert for any sign that prices could accelerate again, especially politically sensitive food prices, which increased 7.5% in March from a year earlier, compared with February’s 6.2% increase.

That means officials will have less room to counter increasing signs of a broader slowdown in the Chinese economy.

“Monetary policy is already quite loose and the central bank won’t loosen more unless it wants to die,” said Yuan Gangming, a senior researcher at Tsinghua University.

With inflation still a worry and Beijing intent on tamping down real estate prices, most analysts believe the central bank is unlikely to cut interest rates any time soon. But growing signs of weakness in the overall economy could prompt it to inject more money into the banking system by reducing the large proportion of deposits that banks must hold in reserve.

Beijing is set to publish first-quarter gross domestic product figures on Friday that are likely to show the world’s second-largest economy grew by around 8.4% from the same period a year earlier, down from 8.9% in the fourth quarter of last year.

While the slowdown remains relatively mild, some economists have predicted a more pronounced deceleration could come later in the year if the troubled housing market falls further and exports continue to decline.

On Tuesday, the government will release trade data for March that is expected to show a slight decline in exports to Europe, China’s biggest trading partner.

The Financial Times Limited 2012