Slight increase in CPI points to room for policy support
Consumer prices rise by 2.1 per cent amid virus controls while factory-gate inflation eases
China’s consumer prices rose slightly last month amid logistics disruptions caused by coronavirus controls, while factory-gate inflation eased to its lowest level in a year, leaving room for policy support to stem economic risks.
The consumer price index (CPI) beat expectations and rose by 2.1 per cent in April year on year, up from a 1.5 per cent gain in March, the National Bureau of Statistics said yesterday.
The producer price index (PPI), which reflects the prices factories charge wholesalers for products, also beat expectations with a year-on-year increase of 8 per cent last month. This was down from a rise of 8.3 per cent in March and the lowest level since a 6.8 per cent increase in April last year.
“The data is largely in line with expectations,” said Larry Hu, chief China economist at Macquarie Group.
“Looking ahead, we expect CPI inflation to trend up and PPI inflation to trend down. Overall, the risk of inflation remains modest in China. Policymakers will step up policy support after the current Covid wave is brought under control.”
The CPI increase was driven by a 1.9 per cent rise in China’s food prices last month year on year, up from a fall of 1.5 per cent in March.
“In April, affected by factors such as the domestic [coronavirus] outbreaks and the continued rise in international commodity prices, CPI rose by 0.4 per cent month on month and 2.1 per cent year on year. All localities and departments have taken multiple measures to ensure supply and stabilise prices,” the bureau’s statistician Dong Lijuan said.
“Due to the rising logistics costs as well as the growing needs for stockpiling food, potatoes, eggs and fresh fruits increased by 8.8 per cent, 7.1 per cent and 5.2 per cent.”
Non-food prices grew by 2.2 per cent last month year on year, unchanged from March, while China’s core consumer inflation rate, which excludes the volatile prices of food and energy, rose by 0.9 per cent in April from a year earlier, down from an increase of 1.1 per cent in March.
“Panic buying and stocking among consumers also probably pushed up demand. As supply chain disruption is gradually resolved, inflationary pressure may fade away,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“As China’s economy slows, domestic demand is likely to weaken in coming months. Inflation is not a concern for the policymakers. The main challenge remains the balance between containing Omicron outbreaks and stabilising economic growth.”
China is battling its worst virus outbreak in two years while it is also challenged by the turbulence in global commodity prices due to the war in Ukraine and capital outflows caused by interest rate rises in the United States.
This has led to increasing calls for more intensive policies to counter the adverse impact of the strict virus controls to ensure the “around 5.5 per cent” economic growth target for this year is met.
“PPI is going softer because of lower metal and coal prices,” said Iris Pang, chief China economist at ING. “This is a reflection of a weaker economy. Even pork and fertiliser prices have gone up. This can’t be interpreted as inflation.
“Taking into account the worry of inflation for the [central bank], though not relevant at the moment, we expect the People’s Bank of China to cut the loan prime rate and the targeted reserve requirement ratio in the third quarter of 2022.”