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Elderly people shop in the food section of a supermarket in Huaibei, in central China's Anhui province, Friday, May 9, 2014. China's inflation eased in April, giving the government more leeway if needed to stimulate the slowing economy. (AP Photo) CHINA OUT (AP)
Elderly people shop in the food section of a supermarket in Huaibei, in central China's Anhui province, Friday, May 9, 2014. China's inflation eased in April, giving the government more leeway if needed to stimulate the slowing economy. (AP Photo) CHINA OUT (AP)

Easing China inflation seen opening door for more support steps Add to ...

Moderating consumer prices and persistent industrial deflation in China have bolstered market expectations that authorities will ease monetary policy or take other steps to arrest a loss of momentum in the second-largest economy.

China’s consumer price index (CPI) rose 1.8 per cent in April from a year earlier, the smallest rise in 18 months, while the producer price index (PPI) dropped 2.0 per cent in its 26th straight fall, the National Bureau of Statistics said on Friday.

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“The relatively low inflation pressure will provide more room for the central bank to manoeuvre its monetary policy in the coming quarters to support the economy,” said Wang Jin, an analyst at Guotai Junan Securities in Shanghai.

The CPI fell 0.3 per cent from March, a second straight monthly fall. Seasonal factors pushed prices lower, but a run of negative readings could raise broader concerns of deflation.

The rise in the annual CPI and the falls in the PPI and the monthly CPI were weaker than median forecasts in a Reuters poll.

“As the risk of deflation rises and the real activities remain lukewarm, we believe that it is time for the PBOC to contemplate easing monetary policy soon,” economists at ANZ said in a note.

Yu Qiumei, a senior statistician at the National Bureau of Statistics, attributed the April CPI reading to drops in vegetable and pork prices, which fell 7.9 per cent and 7.2 per cent from a year ago respectively. “China inflation will keep a mild upward trend in the future and the April reading might be the trough for the first six months of this year,” Yu said in a statement.

China’s growth rate slowed to an 18-month low of 7.4 per cent in the first quarter. The government has unveiled a series of small stimulus steps, but analysts are concerned they not enough to stop economic growth from sliding further.

April trade data on Thursday showed some slight growth in overall exports as orders to the United States and European Union surged, offering some positive signals.

Sources told Reuters earlier this year that the central bank could cut the amount of cash banks must keep as reserves if growth slowed towards 7 per cent. Last month, it cut the reserve requirement ratio for rural banks, but left it unchanged for major banks.

On Tuesday, the central bank said it would keep monetary policy steady with timely fine-tuning to help stabilise growth, while introducing greater yuan flexibility.

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