China consumer price gains fade with industry stuck in deflation

CHINA’S consumer prices barely increased from a year earlier last month and industrial prices continued to slump, underscoring the deflationary pressures that remain a key threat to the economy’s recovery.

The consumer price index rose 0.1 per cent in March from the prior year, the National Bureau of Statistics (NBS) reported on Thursday (Apr 11).

The median forecast of economists in a Bloomberg survey was a 0.4 per cent gain. The inflation rate dropped from 0.7 per cent in February, when it had climbed above zero for the first time in six months during the Chinese New Year holiday.

Producer prices fell 2.8 per cent from a year earlier in March, extending a falling streak for the 18th straight month, the longest since 2016.

The figures suggest domestic demand is struggling to maintain any momentum it picked up during the holiday season, as the country’s real estate slump persists and the job market remains weak. That may dampen optimism – sparked by buoyant exports and factory activity data released in recent weeks – about China’s ability to hit its growth target of around 5 per cent this year.

It may also ramp up pressure on the government to offer more support for the economy. Falling prices squeeze companies’ profit margins, discouraging them from investment, and there is a risk consumers could become even more reluctant to spend in anticipation that goods will be cheaper in the future.

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Chinese policymakers acknowledge that weak demand is a problem, and have lined up steps to counter it – including a plan to subsidise households and businesses that want to upgrade appliances or machines – though they have held back from large-scale stimulus.

In a sign that deflation could continue to haunt the economy in the coming months, price competition in some industries has intensified lately. Companies that produce materials for construction, such as zinc smelters, have been forced to lower their charges because of excess capacity while electric-car producers are offering aggressive discounts to lure customers.

Core inflation, which strips out volatile food and energy prices, slowed to 0.6 per cent last month from 1.2 per cent in February, according to the NBS. BLOOMBERG