china deflation fears rise as inflation tumbles
Last Updated : GMT 13:14:30
Arab Today, arab today
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China deflation fears rise as inflation tumbles

Arab Today, arab today

Arab Today, arab today China deflation fears rise as inflation tumbles

Beijing - XINHUA

China's annual inflation fell sharply in April to its lowest level in 18 months, official data showed Friday, raising concerns about the risk of deflation in the world's second-largest economy. The consumer price index -- a main gauge of inflation -- went up by 1.8 percent year-on-year last month, the National Bureau of Statistics (NBS) said in a statement, down from a rise of 2.4 percent in March. It was the lowest increase since October 2012, when the statistic stood at 1.7 percent. The April figure was also well below the 3.5 percent annual inflation target set by Beijing and added to analyst worries that deflation could be looming as Chinese growth slows. Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, but economists say falling prices encourage consumers to put off spending and companies to delay investment, both of which act as brakes on growth. The producer price index (PPI) -- a measure of costs for goods at the factory gate -- fell by 2.0 percent year-on-year in April, the NBS said in a separate statement, its 26th month of deflation, albeit less steep than its 2.3-percent decline in March. "As the PPI inflation remained negative for more than two years and the PPI is an important leading indicator for CPI, the risk of deflation is looming large on the horizon," ANZ economists Liu Ligang and Zhou Hao said in a research note. Bank of America Merrill Lynch economists Lu Ting and Zhi Xiaojia said in a report that the CPI figure was "below market expectations" and reflected "the weakness of aggregate demand including both consumption and investment". - Call for action - Concerns over Chinese growth have increased this year after a series of weaker-than-expected statistics. The country's gross domestic product (GDP) grew 7.4 percent in the first three months of 2014, weaker than the 7.7 percent in October-December last year and the worst since a similar 7.4 percent expansion in the third quarter of 2012. The inflation figures came one day after April trade data from customs authorities said both imports and exports rose marginally, up less than one percent from a year ago. A private purchasing managers index (PMI) survey released Monday by British bank HSBC showed the sector contracted for a fourth consecutive month in April. In contrast, last week the government's official PMI remained in marginal expansion. Leaders in Beijing say they want to wean the economy off investment as the key growth driver and shift the focus to consumer spending. Premier Li Keqiang in March announced a growth target of "around 7.5 percent" for 2014. Top officials have publicly ruled out a massive stimulus package to kick-start growth and have instead introduced a series of smaller measures, including a cut in the amount of money rural lenders have to keep in reserve, tax breaks for small enterprises and targeted infrastructure outlays. Lu and Zhi said mild inflation gives Beijing room to keep interbank rates low and ensure stable credit growth, and depreciate China's yuan currency to some extent, which will help exporters. "For the government, it can carry out its mini stimulus by speeding up fiscal spending to boost aggregate demand," they said. But ANZ's Liu and Zhou expected policy makers to take more aggressive moves to lower borrowing costs for Chinese firms, such as a general reduction in the amount of cash all banks have to keep on hand. "As the risk of deflation rises and the real activities remain lukewarm, we believe that it is time for the People's Bank of China to contemplate easing monetary policy soon," they said, referring to the country's central bank. The NBS said China's CPI increased by 2.2 percent in the first four months of the year from the same period in 2013. Last month's price increase was mainly driven by food costs, particularly an 18.6 percent jump in fruit prices, according to the statement.

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