Daily Management Review

Consumer And Factory Prices In China Are Falling With Fall In Demand


Consumer And Factory Prices In China Are Falling With Fall In Demand
As demand remained consistently weak in March, China's consumer inflation fell to its lowest level in 18 months and factory-gate price decreases quickened, strengthening the case for officials to take additional measures to sustain the uneven economic recovery.
As the consumer and industrial sectors battle to recover from their epidemic hit, China's producer and retail inflation has remained anemic in comparison to rising prices throughout the world. Analysts now believe that consumer inflation this year may not reach Beijing's official expectations.
The National Bureau of Statistics (NBS) said on Tuesday that the consumer price index (CPI) increased 0.7% year over year, which was slower than the 1.0% increase in February and the smallest rate since September 2021. The outcome was below the 1.0% increase predicted in a Reuters survey.
"China's March inflation report suggests that the Chinese economy is running a disinflation process, which points to bigger room for monetary policy easing to boost demand," said Zhou Hao, economist at Guotai Junan International.
When compared to a 1.4% decline in February, the producer price index (PPI) decreased 2.5% year over year, the quickest rate since June 2020. The PPI has decreased for six months in a row.
Following the release of the data, the Chinese yuan fell to a more than one-week low versus the dollar on Tuesday morning as speculators increased their wagers that domestic interest rates may be lowered. Shanghai's benchmark stock index decreased by 0.25%, erasing an opening day modest rise.
One of the main factors in the CPI, food price inflation, dropped from 2.6% to 2.4% year-over-year in the previous month. On a monthly basis, food prices decreased by 1.4%.
After falling by 0.5% in February, this caused the CPI to decrease by 0.3% from the previous month, shattering forecasts for no change.
The government has established a goal for 2023 that calls for the average consumer price to be around 3%. In 2022, prices increased 2% annually.
"We think consumer price inflation will rebound in the coming months as the labour market tightens again and will peak at 2.3% in early 2024," said Zichun Huang, China economist at Capital Economics. "But it will be well below the government’s ceiling of 'around 3.0%', and the increase in inflation will be far smaller than what was seen elsewhere when they opened up."
Due to the tight COVID-19 regulations, the economy had one of its worst years in over 50 years last year. Policymakers have vowed to increase support for the economy.
According to recent data, China's economic recovery continued to be uneven in March, with the services sector experiencing significant growth while the country's vast manufacturing sector lost steam amid persistently weak export orders.
According to Bruce Pang, chief economist at Jones Lang Lasalle, sluggish trade, delayed recoveries in consumption, and real estate investment will all contribute to producer prices continuing their downward trend in the near future.
"Policies need to prioritise consumption and continue to step up efforts to expand domestic demand."
According to a second announcement from NBS, import-dependent industries had significant price losses, with drops in oil and gas extraction accelerating to 15.7% from 3.0% in February.
Producer prices remained constant from one month ago.
The nation's central bank reduced banks' reserve ratio in March to help an economy struggling with factors like sluggish exports and the real estate crisis.
Premier Li Qiang warned on Friday that Beijing must "try every method" to stabilize exports to developed nations, stressing that the effect of the global slowdown on the local economy remains a major worry.
Analysts believe China can only support so much policy.
"The PBoC just cut the RRR by 25bp at the end of March. However, Beijing still has no appetite to launch a massive stimulus on concerns of distortions and financial risks," analysts at Nomura said.