China’s inflation eased last month to 5.3 percent and other data, including for industrial output and loans, suggested the world’s second-biggest economy may be cooling and there was less need for further aggressive monetary tightening.
Inflation was slightly higher than expected, but lower than a 32-month high in March of 5.4 percent, underlining expectations that price pressures were peaking and would start to ease in the second half of this year.
The annual growth rates for industrial output and retail sales eased more than expected, backing the view that the heady 10 percent-plus pace of economic growth last year is calming.
Food prices, the main driver of overall inflation, fell 0.4 percent last month from March and were up 11.5 percent from a year earlier. Non-food prices rose 0.4 percent last month from March.
“The data suggests that previous measures to get a grip on lending and growth have had an impact,” said George Worthington, chief Asia economist at IFR Markets, a unit of Thomson Reuters, in Sydney.
Several analysts said other data released yesterday, including figures that showed growth in money supply and outstanding bank loans were at a 29-month low, so the central bank could be approaching the end of its monetary tightening.
“The April economic indicators make it less likely that the central bank will raise required reserve ratios or interest rates. I believe the central bank will, at most, raise reserve requirements once in the coming two months,” said Shao Yu (邵宇), an economist with Hongyuan Securities (宏源證券) in Shanghai.
The government aims to limit average inflation this year to 4 percent. The central bank has raised interest rates four times since last October and banks’ reserve requirements seven times, which has meant big banks have a record 20.5 percent in deposits tied up. Those funds could otherwise become loans.
China’s industrial output last month rose 13.4 percent from a year earlier, easing from a pace of 14.8 percent in March, the National Bureau of Statistics said. Output had been forecast in a Reuters poll to rise by 14.7 percent.
Retail sales rose 17.1 percent, lower than 17.6 percent forecast in a Reuters poll and weakening from 17.4 percent in March.
Chinese banks extended 739.6 billion yuan (US$113.9 billion) in new yuan loans last month, more than market forecasts for 700 billion yuan, figures from the People’s Bank of China showed.
M2 money supply growth of 15.3 percent was lower than forecasts of 16.5 percent and also marked the lowest pace in 29 months.
Outstanding yuan loans at the end of last month were 17.5 percent higher than a year earlier, also the weakest pace in 29 months, adding to expectations that inflation, which usually lags money supply trends, may moderate.
Though far too soon for Beijing to declare victory in its battle against inflation, the stabilization of prices suggested that tighter policy was beginning to produce initial results.
“We should say that the upward price trend has been curbed initially and the government measures to control price rises have produced initial effects,” Sheng Laiyun (盛來運), the spokesman of the Chinese National Bureau of Statistics, told reporters. “But we are still facing relatively big inflation pressure. On the one hand, we are facing the big imported inflation pressure, and on the other hand, from the domestic market, we are facing rising labor costs.”
“Therefore, we must not underestimate the situation and keep making it the priority to control price rises,” Sheng added.
Chinese policymakers have made it clear they will deploy the currency as a weapon to deal with the inflationary impact of rising commodity prices, although they also worry that faster yuan rises could hurt exporters and fuel hot money inflows.
Sheng highlighted Beijing’s dilemma on the currency.
“Theoretically, the appreciation of one currency may help ease imported inflation pressure, but currency appreciation is a double-edged sword, which should be used depending on different conditions,” he said.