The People’s Bank of China (PBOC) constructing in Beijing, China, Tuesday, April 18, 2023. In the first quarter, China’s economy expanded at its fastest pace in a yr, putting Beijing heading in the right direction to fulfill its year-on-year growth goal without adding a serious stimulus while helping to cushion the global economy from downturns. source: Bloomberg
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China’s consumer price index rose 0.1% year-on-year in April, the slowest since early 2021. Month-on-month, prices fell by 0.1%.
Economists polled by Reuters had expected consumer prices to rise by 0.4% from a yr ago and remain flat from the previous month.
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Core inflation, which excludes food and energy, remained stable at 0.7% year-on-year and 0.1% month-on-month.
The April reading got here after China’s inflation rate fell to 0.7% in March after peaking at 2.8% in September.
In comparison with last yr, the prices of services increased by 1% in April, in response to the National Statistical Office. This is quicker than the 0.8% increase in March. Significant strength got here from travel as domestic tourism is recovering, especially in transportation and entertainment during the Golden Week festival.
China’s producer price index, which measures the prices paid by wholesalers, fell 3.6%. Economists polled by Reuters had expected a 3.2% year-on-year decline after a 2.5% decline in the previous month.
That is in stark contrast to the latest US inflation figures, which showed consumer prices rose 4.9% in April – weakening in the wake of the Federal Reserve’s efforts to tame inflation by raising rates of interest 10 times in a row.
The Chinese yuan on land it weakened 0.04% to six.9428 against the dollar shortly after release.
“China’s consumer recovery remains to be in its early stages, provided that the economy has been weak for a very long time and folks’s income levels aren’t that top,” Aletheia Capital’s China strategist Vincent Chan told Street Signs Asia. on CNBC.
Chan added that the Chinese government is predicted to “do more” in providing stimulus to stimulate weak demand in the economy.
“There’s more room for stronger fiscal stimulus,” he told CNBC. “Probably the market desires to see it.”
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Inflation in China has eased significantly after it reopened, leading market watchers to wonder if the world’s second-largest economy is headed for deflation, BofA’s chief China economist Helen Qiao wrote in a note on Tuesday.
“Plainly while major central banks are having a tough time taming the inflationary beast, [People’s Bank of China] would rank high on the inflation control scorecard,” she wrote.
Qiao added that China managed to maintain the CPI inflation rate at a median of 1.8%, which is near the lowest three-year average reading since 2003.
BofA economists have noted that core CPI inflation in China is already well below the level in Japan.
Low inflation in China, although not yet at deflationary levels, is probably going because of insufficient demand.
“Households, while already experiencing significant pent-up demand from tourism during the recent holidays, are still cautious about spending on commodities, especially large items (household appliances, cars, etc.),” Qiao wrote in the memo.
“A weak labor market in addition to a slower recovery in the housing market continued to weigh on consumer sentiment,” she wrote.
An outbreak of inflation is unlikely
Service-based inflation readings show that inflation after China reopens is less more likely to spill over to the global economy.
“Briefly, it is evident that the services sector is recovering rapidly since the starting of the yr, but at this stage, we’re still seeing broadening of the reopening recovery with risks from slowing exports, slow housing recovery, still weak confidence,” the economists wrote. with Societe Generale, Michelle Lam and Wei Yao.
“The service-driven nature of this recovery also means there are fewer inflation spillovers for the remainder of the world this yr,” they wrote.
– Lim Hui Jie of CNBC contributed to this report