China’s consumer inflation accelerated in April, exceeding zero for the third consecutive month, while industrial prices extended a prolonged decline, highlighting weak demand in the economy. The consumer price index (CPI) rose 0.3% year-on-year in April, compared to a 0.1% increase in March and a median forecast of 0.2%. The increase in consumer prices may be partially attributed to administrative decisions, such as increases in utility costs and train fares by local governments. However, experts caution that there are significant structural divergences between prices in goods and services, as well as upstream and downstream sectors, and that policy support needs to be stepped up and implemented effectively.
Factory-gate prices, on the other hand, remained in deflation for the sixth consecutive month, with the producer price index (PPI) falling 2.5% year-on-year in April. Falling producer prices are squeezing companies’ profits and making them reluctant to invest. A recent survey of over 20,000 retailers by the General Chamber of Commerce showed that average order values contracted by the most in nine months, even though total sales expanded as customer traffic grew during the Labor Day holiday.
The latest data indicates that deflationary pressure remains a threat to China’s economy, despite green shoots in the manufacturing sector and robust exports. The government has struggled to spur higher household spending amid a real estate slump and a weak job market. Economists emphasize the need for continued policy support to stimulate economic growth and address structural imbalances.
