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ECONOMY
THIS WEEK> THIS WEEK NO. 21, 2014> ECONOMY
UPDATED: May 19, 2014 NO. 21 MAY 22, 2014
Inflation Eases
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China's consumer inflation fell to an 18-month low in April and factory-gate prices declined further, underlining sluggish domestic demand and raising concerns about deflation.

Consumer price index (CPI), a main gauge of inflation, increased 1.8 percent year on year in April, down from 2.4 percent in the previous month, the National Bureau of Statistics (NBS) announced on May 9.

Slower increases in food prices were the main contributor to the lower CPI figure. Food prices increased 2.3 percent year on year, down from 4.1 percent in March.

"Inflation is too low for an economy that expanded at an annual rate of 7-8 percent, and continuously low CPI sets alarm bells ringing for deflation," said Chen Hufei, an economist with Bank of Communications Co. Ltd.

"As food prices remain subdued in the coming months and money supply growth slows, we cannot see any factor that would pull inflation higher in the near future," Chen said.

In April, producer price index (PPI) contracted 2 percent year on year, following a 2.3-percent decline in March, pointing to weakness in the economy, NBS data showed.

The two inflation readings reflect the weakness of demand including in both consumption and investment, said Lu Ting, chief China economist with Bank of America Merrill Lynch.

"We believe it is time for the People's Bank of China (PBC) to contemplate easing monetary policy further," said Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd.

The PBC may cut the reserve requirement ratio for banks by half a percentage point in both the second and third quarters and the government could roll out more loosening measures, Nomura Holdings Inc said.



 
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