China's low inflation sparks fear of deflation

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.

The consumer price index rose 1.8 percent in April from a year earlier, the National Bureau of Statistics said on Friday. The government's inflation ceiling is 3.5 percent for the year and economists expected price rises of 2 percent. Annual inflation was 2.4 percent in March.

China's inflation up 2.4% in March

China's March PPI down 2.3%

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

China's economy grew 7.4 percent year-on-year in the first quarter. It was the slowest growth rate in six quarters. Economic data in April were watched globally to see if the world's second-largest economy is losing momentum or if there are signs of a rebound.

The government stressed observers should not read too much into April's inflation figure, which was attributed to a sharp drop in the cost of pork and vegetables.

Vegetable prices declined an annual 7.9 percent last month and pork 7.2 percent. The NBS said that dragged the total CPI down 0.51 percentage point. In March, vegetable costs surged 12.9 percent, while pork prices fell 6.7 percent.

April's inflation may set a tone for 2014.

"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 coming months," Chen said. "That means price gains will continue to be moderate."

Analysts said the persistent decline in China's producer price index, a main gauge of factory-gate prices, is more worrying.

 

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