China's consumer inflation stays modest

A market in Beijing. China's consumer price index rose 2.3 per cent in April from a year earlier, largely due to a spike in food prices, particularly pork.
A market in Beijing. China's consumer price index rose 2.3 per cent in April from a year earlier, largely due to a spike in food prices, particularly pork. PHOTO: EUROPEAN PRESSPHOTO AGENCY

April reading at same level for three months in a row; slump in producer prices moderates

BEIJING • China's consumer inflation remained modest last month, while the four-year slump in producer prices moderated as commodity prices rebounded, easing concerns about deflationary risks in the world's No. 2 economy.

But analysts disagreed on whether the price trends alone are compelling enough for the country's central bank to shift to a more cautious stance on interest rate cuts just yet, after lowering them six times since late 2014.

Strong March data had raised hopes that the economy was bottoming out from a prolonged slump - possibly allowing the People's Bank of China (PBOC) to take its foot off the pedal - but mixed April data so far and surging debt levels have fuelled doubts about whether any recovery will prove sustainable.

"With regard to monetary policy, we do not expect inflation to play a large part in the central bank's thinking," said Mr Chester Liaw, an economist at Forecast.

"Inflation prints are not too high to dissuade them from further easing if need be, and not too low to warrant loosening."

The consumer price index (CPI) rose 2.3 per cent in April from a year earlier, largely due to a spike in food prices, particularly pork. The reading has been the same for three months in a row, and defied market expectations for a slight pick-up in inflationary pressures.

Non-food prices rose just 1.1 per cent, ticking up from March, but again not showing a build-up in price pressures that would be expected if the broader economy was suddenly perking up.

Stronger inflation, mainly driven by food prices, may give the PBOC reason to hold off on reducing the main interest rate, which is already at a record low. The four-year factory gate deflation has eased as property recovery helps demand.

"The economy is improving," said Mr Ding Shuang, head of greater China economic research at Standard Chartered in Hong Kong, adding that pork inflation was the major driver boosting CPI.

Food prices climbed 7.4 per cent from a year earlier, National Bureau of Statistics data shows.

Stocks closed almost unchanged yesterday, after the Shanghai Composite Index tumbled 2.8 per cent on Monday to a two-month low. The benchmark for Chinese equities is down 20 per cent this year.

Producer prices rose 0.7 per cent from the prior month for the first back-to-back increase since late 2013. They rose 0.5 per cent month on month in March.

Commerzbank economist Zhou Hao wrote: "As long as the underlying demand remains sluggish, we think that (producer price index) inflation is likely to turn soft soon. Balancing all these factors, we believe China's monetary policy stance will remain accommodative."

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 11, 2016, with the headline 'China's consumer inflation stays modest'. Print Edition | Subscribe