BEIJING, May 11 (Reuters) – China’s consumer prices rose at their slowest pace in more than two years in April, as factory gate deflation deepened, data showed on Thursday, suggesting more stimulus may be needed to boost the patchy economic recovery after COVID. .
Weak consumer price increases reinforce signals from this week’s trade data that suggest domestic demand remains lackluster, while the deflationary impulse in producer prices underscores strains on factories – a double-whammy for the world’s second-largest economy as it tries to undo the damage caused by COVID.
The consumer price index (CPI) in April rose 0.1% year-on-year, the lowest rate since February 2021, and cooled from the 0.7% annual gain seen in March, the National Bureau of Statistics (NBS) said ). The result missed the median estimate of a 0.4% increase in a Reuters poll.
Producer deflation also deepened last month, which combined with CPI data, highlights the broader economic struggles that have resurfaced after the lifting of COVID curbs in December.
The producer price index (PPI) fell at the fastest clip since May 2020 and fell for the seventh straight month, falling 3.6% year-on-year after a 2.5% decline the previous month. That compared to a forecast for a 3.2% fall.
China’s economy grew faster than expected in the first quarter due to the lifting of COVID curbs but the recovery has been uneven. Recent data showed that factory activity has contracted, while continued weakness in the property market remains a concern.
The reopening likely put some upward momentum in services inflation, but this was largely offset by slowing growth in food and energy prices, analysts said.
The latest data could increase pressure on the People’s Bank of China (PBOC) to cut rates or release more liquidity into the financial system. It cut lenders’ reserve requirement ratio (RRR) for the first time this year in March.
China has already told its banks to lower the ceiling on the interest rates they pay on certain types of deposits.
“Amid the weakening post-Covid recovery, the PBOC’s guidance to cut deposit rates, continued disinflation, falling market rates and the Fed hinting at a potential pause, we continue to believe that the reduction of the PBOC’s policy lending rate is becoming more likely,” Ting Lu, chief China economist at Nomura, said in a research note.
PBOC TESTED
Overall inflationary pressures remain low with core consumer inflation, which excludes volatile food and energy prices, up 0.7%, unchanged from the previous month.
The statistics bureau attributed the weaker consumer inflation to the base effect. Vegetable prices extended their decline to 13.5% and pork, a key driver of the CPI, slowed its price growth to 4.0% from 9.6% in March.
Analysts are generally divided on whether the central bank will continue to ease policy as record credit growth is likely to limit the extent of any monetary support it can provide.
“China is still in a phase of disinflation, not deflation. The post-reopening recovery boosted by the Labor Day holidays could further push up May’s CPI numbers, meaning less urgency for large-scale monetary easing in the near term,” said Bruce Pang, chief economist at Jones Lang Lasalle.
Top leaders pledged at a Politburo meeting last month to maintain support for the economy, focusing on boosting domestic demand.
“Securing income growth and improving consumer confidence remain top policy priorities for delivering a more sustainable consumption recovery,” Pang said.
Reporting by Liangping Gao and Ryan Woo; Editing by Shri Navaratnam
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