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Economic Watch: Falling food prices keep a lid on China's inflation

05/24/2018 17:30

Market expectations for higher inflation have abated in China as abundant food supply kept consumer price growth mild in April.

The consumer price index (CPI), a main gauge of inflation, rose 1.8 percent year on year last month, compared with 2.1 percent for March, according to the National Bureau of Statistics (NBS).

On a month-on-month basis, the CPI edged down 0.2 percent.

Lower food prices were the "major reason" for the CPI decline from March, said NBS statistician Sheng Guoqing.

Food prices slipped 1.9 percent month on month and climbed only 0.7 percent year on year.

"With a prudent and neutral monetary policy, supply and demand will remain stable. We'll continue to see mild inflation," said Cao Heping, a professor with the Peking University school of economics.

China's CPI growth hit 2.9 percent in February due to a low comparison base and seasonal factors.

Lian Ping, economist with the Bank of Communications, believes stable demand and moderated liquidity growth does not support high inflation despite previous market anticipation for price rises.

The M2, a broad measure of the money supply that covers cash in circulation and all deposits, grew 8.2 percent year on year at the end of March, compared with an 8.8-percent increase a month earlier, central bank data showed.

Lian forecast that annual CPI growth this year would stay below the 3-percent target set by the government.

Average year-on-year CPI growth in the January-April period stood at 2.1 percent, according to the NBS.

In April, the price of pork, China's staple meat, slumped 16.1 percent year on year, dragging down CPI growth by 0.43 percentage points. It fell 6.6 percent month on month.

The Ministry of Agriculture and Rural Affairs attributed the pork price decline to oversupply.

"As temperatures increase in the coming period, pork demand will see a seasonal contraction. There is little likelihood of a pork price rebound," the ministry said in a report.

Tang Jianwei, an analyst with Bank of Communications financial research center, expects the pork price drop to put downward pressure on CPI growth.

Non-food prices in April rose 2.1 percent from the same period last year and 0.2 percent from March.

The producer price index (PPI), which measures the cost of goods at the factory gate, rose 3.4 percent year on year in April, up from the 3.1 percent recorded in March.

Deng Haiqing, economist with JZ Securities, attributed the faster PPI growth to a low comparison base.

"We estimate that the annual PPI growth will unlikely exceed 2 percent," Deng said in a research note.

(Source: Xinhua)

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