China's consumer inflation continued firming trend in April

A customer counts her money as she purchases vegetables at a market in Beijing, China.
A customer counts her money as she purchases vegetables at a market in Beijing, China. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's consumer prices continued rising at a healthy clip, though still below the government's target pace, while factory-gate deflation narrowed more than expected.

The consumer-price index rose 2.3 per cent in April for a third straight month, matching economist estimates in a Bloomberg survey. The producer-price index fell 3.4 per cent, less than the 3.7 per cent decline analysts estimated and the 4.9 per cent drop in March.

Stronger inflation, mainly driven by food prices, may give the People's Bank of China reason to hold off on another reduction to the main interest rate, which is already at a record low. Four years of factory deflation has eased as a property recovery helps demand.

"The economy is improving," said Ding Shuang, head of greater China economic research at Standard Chartered in Hong Kong, adding that pork inflation was the major driver boosting CPI. Considering the warning yesterday from a top Communist Party official about risks associated with soaring debt levels, "we see a moderately prudent monetary policy in the near future."

For the third time in less than a year on Monday, the People's Daily published an extended interview with an unnamed official expounding the policies needed to address economic challenges. Excessive debt was China's "original sin" and the country can't borrow its way to long-term economic health, the official said.

Food prices climbed 7.4 per cent from a year earlier, National Bureau of Statistics data showed. Non-food inflation was 1.1 per cent last month.

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 percent month-on-month in March.

"The acceleration of PPI inflation in the past two months is largely due to surging steel prices pushed up by speculative flows, rather than improving demand," Zhou Hao, an economist at Commerzbank in Singapore, wrote in a note. "As long as the underlying demand remains sluggish, we think that that PPI inflation is likely to turn soft soon. Balancing all these factors, we believe that China's monetary policy stance will remain accommodative."

Producer prices for mining fell 13 per cent from a year earlier, while raw materials dropped 7.7 per cent and manufacturing decreased 2.5 per cent. Food and clothing both increased 0.7 per cent at the producer level.

Consumer prices for food got a major boost from pork, a staple of the Chinese diet, which jumped 33.5 per cent from a year earlier. Fresh vegetable prices climbed 22.6 per cent from a year earlier, less than the 35.8 per cent jump registered the prior month.