April inflation slowest for 18 months
Print Edition
CHINA’S consumer price index expanded at its slowest rate for 18 months in April due to lower food prices, giving more room for policy easing, the National Bureau of Statistics said yesterday.
The CPI, which is the country’s main gauge of inflation, increased 1.8 percent year on year in the month, down from 2.4 percent in March and its smallest gain since October 2012.
The slowdown was driven by cheaper pork and vegetables due to seasonal factors and a high comparative base in 2013, said bureau analyst Yu Qiumei.
Pork prices fell 7.2 percent year on year in April, pulling the CPI down by 0.21 points, while the cost of fresh vegetables dropped 7.9 percent, trimming 0.28 points off the index, the bureau said.
Yu said he expects inflation to remain “modest” in the coming months, though the April figure is likely to be the low point for the first half of the year.
Zhou Hao, an economist at Australia & New Zealand Banking Group, said the dip in inflation, coupled with only lukewarm activity in the real economy had increased the risk of deflation.
As a result, the authorities should consider further policy easing, he said.
“It is time for the central bank to contemplate relaxing its monetary policies, such as short-term open market operations, to maintain accommodative market conditions,” Zhou said.
He also advised a reduction in the reserve requirement ratio for large and medium-sized banks, following a similar move to help small-scale lenders last month.
Meanwhile, the producer price index, the factory-gate measure of inflation, fell 2 percent in April, following a 2.3 percent dip a month earlier.
PPI inflation, which is an important advance indicator for the CPI, has been in decline for more than two years, so the risk of deflation is very real, Zhou said.
China’s economy has shown signs of stabilization over the past month after the State Council introduced a slew of measures to support growth and employment. These included lowering reserve requirements for rural banks and speeding up railway construction programs.
The policy support came after the nation’s gross domestic product expanded by just 7.4 percent in the first quarter of the year, its slowest rate for 18 months.
Zhang Zhiwei, an economist at Nomura, said second-quarter growth could slow further to 7.1 percent, dragged down by the property sector.
“We continue to expect cuts to the banks’ reserve requirement ratio in the second and third quarters,” Zhang said.
“If policy doesn’t loosen in the second quarter, we see a downside risk to our GDP forecasts of 7.4 percent for the third quarter and 7.5 percent for the fourth,” he said.
In the first four months, consumer prices rose 2.2 percent year on year, below the government’s full-year target of 3.5 percent.
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