Slower price rise signals milder inflation this year
The slower rise in China’s consumer prices last month signals mild inflation for the rest of the year, creating favorable conditions for macro adjustments to shore up economic growth, experts said on Friday.
Growth in China’s consumer price index, a main gauge of inflation, softened to 4.3 percent year-on-year in March, versus 5.2 percent in the previous month, the National Bureau of Statistics said on Friday.
On a monthly basis, the CPI dropped by 1.2 percent last month, down from a 0.8 percent rise in February, pointing to easing inflationary pressure, the bureau reported.
Dong Lijuan, a senior NBS statistician, mainly attributed the softened CPI figures to the increase in food supplies as the nation’s combat against the COVID-19 achieved progress.
“In March, the resumption of work and production accelerated, while transportation and logistics recovered,” Dong said.
Food prices rose by 18.3 percent year-on-year last month, down by 3.6 percentage points from a month earlier, while nonfood prices edged up by 0.7 percent, the NBS reported.
“This year’s peak in CPI growth has passed,” said Liu Xuezhi, a senior researcher at the Financial Research Center of the Bank of Communications. “Year-on-year growth in CPI will gradually go down starting in the second quarter of the year.”
The ramped-up supply of pork should tamp down the rise in food prices, he said, while the nation’s high degree of grain self-sufficiency and ample reserves will shield the risk brought by a possible reduction in agricultural food imports.
Imports took up less than 5 percent of China’s consumption of grain, according to data compiled by Hua Chuang Securities.
A continuously softening CPI rise would ease the concern that injecting more liquidity would push up inflationary pressure and therefore support the flexible monetary policy in countering an economic slowdown, according to Liu Min, analyst of China markets with global foreign exchange broker FXTM.
The People’s Bank of China, the central bank, is to cut the ratio of cash that some commercial banks must keep as reserves by 1 percentage point, implemented on Wednesday and May 15, the third time this year that the PBOC is reducing banks’ required reserves to facilitate lending to the real economy.
Some analysts expect more cuts in the required reserves and policy interest rates, as well as a stronger fiscal expansion, to come out this year, citing the sluggish demand indicated by the producer price index.
China’s producer price index declined by 1.5 percent year-on-year last month, down from a 0.5 percent drop in February and registering the lowest level in five months, the NBS said.
The growth in core CPI, which excludes food and energy prices, edged up to 1.2 percent year-on-year in March, indicating modestly recovering but still weak domestic demand.
The contraction in external demand due to the global COVID-19 pandemic and subdued international crude oil prices may continue to put pressure on the PPI, which could squeeze profits of industrial firms, according to Li Lin, chief economist with Beijing-based fintech conglomerate CreditEase.
Li expected accelerated issuance of local government bonds in the second quarter, which will bolster infrastructure investment, adding that China’s economic growth may recover to 3.5 percent year-on-year in the second quarter from a negative growth in the first one.
Wednesday’s meeting of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, presided over by President Xi Jinping, has reiterated the policy stance to step up macro adjustments.
The meeting decided to employ every available means to create an enabling environment for resuming business operations, including stronger support to hard-hit sectors and small and medium-sized enterprises and heightened steps to expand domestic demand.
Ouyang Shijia contributed to this story.