The People’s Bank of China (PBOC) Building in Beijing, China, on Tuesday, April 18, 2023. China’s economy grew at its fastest pace in a year in the first quarter, put Beijing on track to meet its growth target for the year without additional major stimulus measures, while helping to support the global economy against a recession. Source:Bloomberg
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China’s consumer price index rose 0.1% in April year-on-year, the slowest since early 2021. On a month-on-month basis, prices fell 0.1%.
Economists polled by Reuters expect consumer prices to rise 0.4% from a year ago and stay flat from the previous month.
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Core inflation, excluding food and energy, remained stable at 0.7% YoY and 0.1% MoM.
The April data comes after China’s inflation rate fell to 0.7% in March after marking a recent peak of 2.8% in September.
Compared to last year, service prices rose 1% in April, according to the National Bureau of Statistics. That was faster than the 0.8 percent increase in March. Notable strength comes from tourism as domestic tourism recovers, particularly in transportation and leisure activities during the Golden Week holiday.
of China producer price index, which measures the price paid by the wholesaler, fell 3.6%. Economists surveyed by Reuters expected a 3.2% decline year-on-year after falling 2.5% in the previous month.
That is in stark contrast to the latest overnight US inflation data showing Consumer prices rose 4.9% in April – easing after the Federal Reserve’s attempt to tame inflation by raising interest rates 10 times in a row.
The Chinese yuan on shore weakened 0.04% to 6.9428 against the US dollar shortly after the release.
“The Chinese consumer recovery is still in its early stages, given that the economy has been weak for quite some time, and the economy has been weak for quite some time,” Vincent Chan, China strategist at Aletheia Capital, told CNBC’s Street Signs Asia. People’s income level is not high”.
Chan added that the Chinese government expects to “do more” in providing stimulus measures to boost weak demand in the economy.
“There is more room for stronger fiscal stimulus,” he told CNBC. “Perhaps the market wants to see that.”
Inflation has largely been contained in China following the reopening, prompting market observers to question whether the world’s second-largest economy is slipping into deflation, the economist said. BofA’s chief China economist, Helen Qiao, wrote in a report Tuesday.
“It seems that when the major central banks have trouble taming the inflationary monster, [People’s Bank of China] would rank highly on the inflation control scorecard,” she wrote.
Qiao added that China has managed to keep the consumer price index inflation rate at an average of 1.8%, close to the lowest 3-year average since 2003.
Now, China’s core CPI inflation is already much lower than Japan’s, BofA economists note.
Although not yet in deflation, China’s low inflation could be attributed to insufficient demand.
“Households, although they have noticed a significant pent-up in travel demand during recent holidays, are still cautious about spending on goods, especially on high-value items. large (white goods, cars, etc.),” Qiao wrote in the note.
“The weak labor market as well as the slower recovery of the real estate market continue to weigh on consumer sentiment,” she wrote.
Pervasive inflation is unlikely
Service-driven inflation indicators suggest the possibility of lower inflation from China’s reopening spilling over into the global economy.
“In short, it is clear that the services sector is rapidly normalizing since the beginning of the year, but at this stage, the extension of the reopening recovery process still contains risks from exports. slowing, real estate recovery sluggish, confidence still weak,” wrote Societe Generale economists Michelle Lam and Wei Yao.
Latest Caixin/S&P Global Services Purchasing Managers Index remained in growth territory in April, suggesting that the service sector remains the bright spot despite disappointing factory activity data.
“The nature of this service-based recovery also means there will be less inflationary spillovers to the rest of the world this year,” they wrote.
– Lim Hui Jie of CNBC contributed to this report
