According to data released on Thursday, factory gate deflation widened while consumer price growth in China slowed to its lowest level in more than two years in April. This suggests that additional stimulus measures may be required to strengthen the shaky post-COVID economic recovery.
The weak consumer price increase confirms this week's trade data's signals that domestic demand is still subpar, and the deflationary impulse in producer prices highlights the pressures on factories, dealing the second-largest economy in the world a double blow as it attempts to recover from COVID's harm.
According to the National Bureau of Statistics (NBS), the consumer price index (CPI) increased by 0.1% year over year in April, the lowest pace since February 2021 and down from the 0.7% annual increase witnessed in March. The outcome fell short of the median forecast of a 0.4% increase in a Reuters survey.
In addition to the CPI figures, producer deflation increased last month, underscoring the general economy's difficulties in picking up speed following the easing of COVID limitations in December.
The producer pricing index (PPI), which had previously dropped 2.5% the month before, dropped at its quickest rate since May 2020 and for the seventh consecutive month. This contrasted with a predicted decline of 3.2%.
The relaxation of COVID limitations caused China's economy to expand faster than anticipated in the first quarter, but the rebound has been uneven. Recent data showed a decrease in factory activity, and the continuous weakness in the real estate market is still a cause for concern.
The reopening likely gave services inflation some higher momentum, but economists think it was mostly countered by decreasing increases in food and energy prices.
The most recent data may put greater pressure on the People's Bank of China (PBOC) to lower interest rates or increase the amount of liquidity available to the banking sector. In March, it reduced the reserve requirements ratio (RRR) for lenders for the first time this year.
China's banks have already been instructed to lower the maximum interest rates they can charge for several types of deposits.
"Amid a weakening post-Covid recovery, the PBOC’s guidance to cut deposit rates, ongoing disinflation, falling market rates and the Fed signalling a potential pause, we continue to believe a PBOC policy lending rate cut is becoming more likely," Ting Lu, chief China economist at Nomura, said in a research note.
The core consumer inflation rate, which includes volatile food and energy prices, is up 0.7%, unchanged from the previous month, indicating that overall inflationary pressures are still mild.
The base effect was cited by the statistics agency as the cause of the lower consumer inflation. The price of vegetables continued to fall, falling 13.5%, and pork, a significant CPI driver, decreased its price growth to 4.0% from 9.6% in March.
The extent of whatever monetary support the central bank may be able to offer is expected to be constrained by record credit growth, so analysts are divided on whether it will continue to loosen policy.
"China is still in the stage of disinflation, not deflation. The post-reopening recovery boosted by the Labour Day holidays could further spur CPI numbers in May, meaning there is less urgency for large-scale monetary easing in the near term," said Bruce Pang, chief economist at Jones Lang Lasalle.
Top officials promised to continue supporting the economy, focused on increasing domestic demand, at a Politburo meeting last month.
"Securing income growth and improving consumer confidence remain key policy priorities for delivering a more sustainable consumption recovery," said Pang.
(Source:www.business-standard.com)
The weak consumer price increase confirms this week's trade data's signals that domestic demand is still subpar, and the deflationary impulse in producer prices highlights the pressures on factories, dealing the second-largest economy in the world a double blow as it attempts to recover from COVID's harm.
According to the National Bureau of Statistics (NBS), the consumer price index (CPI) increased by 0.1% year over year in April, the lowest pace since February 2021 and down from the 0.7% annual increase witnessed in March. The outcome fell short of the median forecast of a 0.4% increase in a Reuters survey.
In addition to the CPI figures, producer deflation increased last month, underscoring the general economy's difficulties in picking up speed following the easing of COVID limitations in December.
The producer pricing index (PPI), which had previously dropped 2.5% the month before, dropped at its quickest rate since May 2020 and for the seventh consecutive month. This contrasted with a predicted decline of 3.2%.
The relaxation of COVID limitations caused China's economy to expand faster than anticipated in the first quarter, but the rebound has been uneven. Recent data showed a decrease in factory activity, and the continuous weakness in the real estate market is still a cause for concern.
The reopening likely gave services inflation some higher momentum, but economists think it was mostly countered by decreasing increases in food and energy prices.
The most recent data may put greater pressure on the People's Bank of China (PBOC) to lower interest rates or increase the amount of liquidity available to the banking sector. In March, it reduced the reserve requirements ratio (RRR) for lenders for the first time this year.
China's banks have already been instructed to lower the maximum interest rates they can charge for several types of deposits.
"Amid a weakening post-Covid recovery, the PBOC’s guidance to cut deposit rates, ongoing disinflation, falling market rates and the Fed signalling a potential pause, we continue to believe a PBOC policy lending rate cut is becoming more likely," Ting Lu, chief China economist at Nomura, said in a research note.
The core consumer inflation rate, which includes volatile food and energy prices, is up 0.7%, unchanged from the previous month, indicating that overall inflationary pressures are still mild.
The base effect was cited by the statistics agency as the cause of the lower consumer inflation. The price of vegetables continued to fall, falling 13.5%, and pork, a significant CPI driver, decreased its price growth to 4.0% from 9.6% in March.
The extent of whatever monetary support the central bank may be able to offer is expected to be constrained by record credit growth, so analysts are divided on whether it will continue to loosen policy.
"China is still in the stage of disinflation, not deflation. The post-reopening recovery boosted by the Labour Day holidays could further spur CPI numbers in May, meaning there is less urgency for large-scale monetary easing in the near term," said Bruce Pang, chief economist at Jones Lang Lasalle.
Top officials promised to continue supporting the economy, focused on increasing domestic demand, at a Politburo meeting last month.
"Securing income growth and improving consumer confidence remain key policy priorities for delivering a more sustainable consumption recovery," said Pang.
(Source:www.business-standard.com)
