CHINA’S INFLATION STAYS BELOW TARGET
Factory-gate deflation gives government room for major stimulus
beijing — Consumer inflation in China remained below the government’s target in March while factory-gate deflation deepened, giving Premier Li Keqiang more scope to roll out measures to support growth.
The consumer price index rose 2.4 per cent from a year earlier, the National Bureau of Statistics said on Friday in Beijing, matching the median estimate of economists in a Bloomberg News survey. The producer price index fell 2.3 per cent, after a two per cent drop in February, extending the decline to 25 months.
While inflation below the government’s full-year target of 3.5 per cent points to room for more stimulus to support a slowing economy, Li has indicated he wants to limit such measures. The nation is next week set to report the weakest quarterly growth since 2009, according to a Bloomberg News survey of analysts.
“Inflation remains very low in China and growth is still the concern,” said Xu Gao, chief economist with Everbright Securities Co in Beijing. “The pressure on the central bank to loosen monetary policy will grow.”
China’s benchmark Shanghai Composite Index was 0.3 per cent lower at 10.34am local time. The yield on 4.47 per cent government bonds due January 2019 rose one basis point to 4.171 per cent.
Food prices in March rose 4.1 per cent from a year earlier, contributing 1.35 percentage points to the gain in consumer prices, the NBS said in a statement. Non-food inflation was 1.5 per cent, down from a 1.6 per cent pace in February.
The drop in the producer-price index compared with the median estimate of economists for a 2.2 per cent fall and extends the lon- gest stretch of declines since a 31-month slide that started in 1997. Yanzhou Coal Mining Co, China’s fourth-largest producer, last month reported 2013 net income fell to 777.4 million yuan ($125 million) from a restated 6.07 billion yuan a year earlier. The company will seek to cut at least 3,000 workers this year, Chairman Li Xiyong said on March 24.
“Prolonged PPI deflation suggests weak domestic demand,” said Ding Shuang, senior China economist at Citigroup in Hong Kong. “Generally higher interna- tional commodity prices in recent months, together with the positive contribution from the base effect in the next few months, will likely ease PPI deflation in the second quarter.”
Friday’s report adds to signs of slower demand both at home and from overseas, after customs administration data on Thursday showed exports and imports unexpectedly fell in March from a year earlier. Gross domestic product may rise 7.3 per cent in the first quarter from a year earlier, according to the median estimate in a Bloomberg News survey ahead of data due April 16. That would be the slowest pace since 2009 and lower than Li’s 2014 expansion target of about 7.5 per cent.
Li said in a speech on Thursday that China “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy. Instead we will focus more on healthy growth in the medium to long term and will make efforts to achieve sustainable and healthy development.”
His comments followed a State Council announcement earlier this month outlining a package of measures to support the economy and create jobs, including speeding up railway spending and offering tax relief to smaller companies. The government has so far avoided monetary measures such as cutting banks’ reserve requirement ratios.