Shopper costs in China rose 0.1% in April, the slowest in two years

The People’s Bank of China (PBOC) building in Beijing, China on Tuesday, April 18, 2023. China’s economy grew at the fastest pace in a year in the first quarter, putting Beijing on track to meet its full-year growth target to achieve This provides important impetus and at the same time helps to protect the global economy from a downturn. 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 0.1%.

Economists polled by Reuters expect consumer prices to rise 0.4% yoy and remain flat from the previous month.

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Core inflation, which excludes food and energy, remained steady at 0.7% yoy and 0.1% mom.

The April reading comes after China’s inflation rate fell to 0.7% in March after hitting a recent peak of 2.8% in September.

According to the National Bureau of Statistics, service prices rose 1% in April from a year earlier. That’s faster than March’s 0.8% gain. Notable strength came from travel, as domestic tourism rebounded, particularly in transportation and leisure during the Golden Week holiday.

China’s producer price index, which measures prices paid by wholesalers, fell 3.6%. Economists polled by Reuters were expecting a 3.2% year-on-year decline after falling 2.5% the previous month.

That is in stark contrast to the latest overnight US inflation data, which showed consumer prices rose 4.9% in April – an easing on the back of the Federal Reserve’s effort to contain inflation by raising interest rates 10 times in a row.

The Chinese onshore yuan down 0.04% to 6.9428 against the US dollar shortly after the release.

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“China’s consumer recovery is still in its early stages as the economy has been weak for quite some time and people’s income levels are not that high,” Vincent Chan, Aletheia Capital’s China strategist, told Street Signs Asia CNBC.

Chan added that the Chinese government is expected to “do more” to provide stimulus to boost the economy’s weak demand.

“There is more room for more fiscal stimulus,” he told CNBC. “Probably the market wants to see that.”

Inflation has largely eased in China after reopening, leading market watchers to question whether the world’s second-biggest economy is headed for deflation, BofA’s chief China economist Helen Qiao wrote in a note on Tuesday.

“It almost seems as if major central banks are struggling to rein in the inflation monster [People’s Bank of China] “Would have ranked high on the inflation control scorecard,” she wrote.

Qiao added that China has managed to keep CPI inflation at an average of 1.8%, close to the lowest 3-year average since 2003.

Now China’s core CPI inflation is already well below Japan’s level, BofA economists noted.

China’s low inflation, while not yet at deflationary levels, may reflect insufficient demand.

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“Although households have already seen a clear pent-up demand from tourism over the past few holidays, they are still reluctant to spend on goods, especially when it comes to large purchase prices (household appliances, cars, etc.),” ​​Qiao wrote in the statement.

“Weak labor markets and a slower housing market recovery continued to weigh on consumer sentiment,” she wrote.

Inflation spillover is unlikely

Services-related inflation readings show China’s reopening is less likely to spill over into the global economy.

“In short, it’s clear that the services sector is quickly normalizing year-to-date, but at this point the extension of the reopening recovery remains to be seen, with risks from slowing exports, a sluggish real estate recovery and still weak confidence. wrote economists Michelle Lam and Wei Yao of Société Générale.

The latest Caixin/S&P Global Services PMI remained in growth territory in April, showing that services remain a bright spot despite disappointing factory activity data.

“The services-driven nature of this recovery also means there are fewer inflationary effects on the rest of the world this year,” they wrote.

– CNBC’s Lim Hui Jie contributed to this report

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