According to the National Bureau of Statistics (NBS), the consumer price index (CPI) in April increased by 0.1% year-on-year, marking the slowest rate of growth since February 2021. This figure reflects a cooling trend compared to the 0.7% annual increase observed in March.
Data released on Thursday revealed that China experienced the slowest increase in consumer prices in over two years in April, accompanied by a deepening deflationary trend in factory gate prices. These indicators suggest that additional stimulus measures may be necessary to bolster the country’s uneven post-COVID economic recovery.
The modest rise in consumer prices confirms the previous signals from trade data this week, indicating subdued domestic demand. Meanwhile, the deflationary pressures in producer prices underscore the challenges faced by factories, creating a dual challenge for the world’s second-largest economy as it strives to recover from the pandemic’s impact.
According to the National Bureau of Statistics (NBS), the consumer price index (CPI) in April recorded a year-on-year increase of only 0.1%, marking the lowest rate since February 2021 and a decline from the 0.7% gain observed in March. This figure fell short of the median estimate of a 0.4% rise in a Reuters poll.
Furthermore, the deflationary trend among producers intensified last month, as evidenced by the producer price index (PPI) experiencing the sharpest decline since May 2020. It marked the seventh consecutive month of decline, with a year-on-year drop of 3.6%, following a 2.5% decrease in the previous month. These figures deviated from the forecast of a 3.2% decline.
China’s economy outperformed expectations in the first quarter due to the easing of COVID restrictions. However, the recovery has been uneven, with recent data indicating a contraction in factory activity and ongoing weakness in the property market, which continues to pose concerns.
According to analysts, the reopening of the economy has likely contributed to an increase in services inflation. However, this upward momentum has been largely offset by a slowdown in the growth of food and energy prices.
The latest data may exert additional pressure on the People’s Bank of China (PBOC) to consider interest rate cuts or inject more liquidity into the financial system. In March, the PBOC already reduced lenders’ reserve requirements ratio (RRR) for the first time this year.
China has also instructed its banks to lower the maximum interest rates they offer on certain types of deposits.
Given the weakening post-COVID recovery, ongoing disinflation, declining market rates, and the Federal Reserve signaling a potential pause, there is growing belief among economists, such as Ting Lu, the chief China economist at Nomura, that a PBOC policy lending rate cut is becoming increasingly likely.