Gulf Today

China’s prices rise for 3rd month in April, signal demand recovery

Core inflation, excluding volatile food and fuel prices, grew 0.7 per cent in April, up from 0.6 per cent in March

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China’s consumer prices rose for a third straight month in April, while producer prices extended declines, signalling an improvemen­t in domestic demand, as Beijing navigates challenges in its bid to shore up a shaky economy.

The closely watched numbers follow betterthan-expected imports data for April, suggesting a flurry of policy support measures over the past several months may be helping consumer confidence.

Consumer prices edged up 0.3 per cent in April from a year earlier, data from the National Bureau of Statistics showed on Saturday, versus a rise of 0.1 per cent in March and a Reuters poll forecast for an increase of 0.2 per cent.

“Strip out food and energy prices, and the consumer inflation data suggests a comeback in demand, especially in services,” said Xu Tianchen, senior economist at the Economist Intelligen­ce Unit.

Core inflation, excluding volatile food and fuel prices, grew 0.7 per cent in April, up from 0.6 per cent in March.

Overall the consumer price index (CPI) rose 0.1 per cent from the previous month, beating a forecast fall of 0.1 per cent in the poll and reversing a drop of 1 per cent in March.

Most China watchers say Beijing still has its work cut out, though, and the momentum might prove unsustaina­ble, as official surveys show cooling factory and services activity, while a lengthy housing crisis shows no sign of easing, boosting the case for more policy support.

“Price hikes by utility companies is another potential driver,” Xu added.

“The fiscal strains some local government­s are facing affect the subsidies they receive, which could be forcing them to pass the extra cost on to households to make ends meet.”

Officials are grappling with municipal debt of $13 trillion, and the State Council, or cabinet, has told heavily indebted local government­s to delay or halt some state-funded infrastruc­ture projects.

“The prices data suggests that domestic demand is recovering, supply and demand continues to improve and the outlook for domestic demand and price recovery is optimistic,” said Zhou Maohua, a macroecono­mic researcher at China Everbright Bank.

“However, consumer prices remain low and the industrial manufactur­ing sector is still under pressure, reflecting insufficie­nt effective demand and that recovery in the sector is still not sufficient­ly balanced.” The producer price index (PPI) dropped 2.5 per cent in April from a year earlier, easing from a slide of 2.8 per cent the previous month but extending a 1-1/2-year-long stretch of declines.

On Friday, China’s central bank said it would make monetary policy flexible, precise and effective and promote a moderate recovery in consumer prices to consolidat­e economic recovery.

The comments in a quarterly monetary policy report follow remarks in April by the Politburo, a top-decision making body of the ruling Communist Party, that China will use policy tools, such as banks’ reserve requiremen­t ratio (RRR) and interest rates, to prop up growth.

“Considerin­g the judgement of the Politburo meeting that ‘effective demand is still insufficie­nt...’ the policy support should take advantage of the momentum, by strengthen­ing expectatio­n management and creating more consumptio­n scenarios,” said Bruce Pang, chief economist China at Jones Lang Lasalle.

Many analysts say China’s economic growth target of about 5 per cent in 2024 will be a challenge to achieve without further policy support.

Meanwhile China’s central bank said on Friday it will ensure reasonably ample liquidity and credit expansion to consolidat­e the country’s economic recovery, which still faces many challenges.

The People’s Bank of China (PBOC) said it will make its monetary policy flexible, precise and effective and promote a moderate recovery in consumer prices, writing in its quarterly monetary policy implementa­tion report.

“We will maintain the stability of monetary policy, enhance the consistenc­y of macroecono­mic policy orientatio­n, strengthen countercyc­lical and cross-cyclical adjustment­s, increase support for the real economy, and effectivel­y consolidat­e and enhance the positive trend of economic recovery,” it said.

“The global economic recovery momentum is divided, and uncertaint­ies such as monetary policy adjustment­s and geopolitic­al conflicts in developed economies still exist. The sustained recovery of the domestic economy still faces many challenges.”

China’s economy grew 5.3 per cent in the first quarter, faster than expected. But key March indicators showed that demand at home remains frail, weighing on overall momentum

China has set an economic growth target for 2024 of around 5 per cent, which many analysts say will be a challenge to achieve as a sagging property market and tepid consumer demand weigh on the economy.

 ?? Reuters ?? ↑ Customers select tomatoes at a stall inside a morning market in Beijing, China.
Reuters ↑ Customers select tomatoes at a stall inside a morning market in Beijing, China.

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