China Inflation


Inflation slows in April, but remains well above comfortable levels

In April, consumer prices rose 5.3% over the same month the year before, which was only a notch below the 5.4% reading tallied in March, but slightly exceeded market expectations of a 5.2% increase. The main driver behind the annual increase was a foodstuff price rise of 11.5% (March: +11.7% year-on-year), while housing prices advanced 6.1% over the same month the year before (March: +6.6% yoy). In spite of a more moderate reading in April, annual average inflation continued moving upwards to 4.3% (March: +4.1% yoy). Inflationary pressures remain in place despite ongoing aggressive monetary tightening measures, which, since October 2010, have included four interest rate hikes and a 400 basis?point increase in the reserve requirement ratio. Since annual inflation is still well above the government target of 4.0% set for this year, most analysts expect the People's Bank of China will continue to raise interest rates and further increase the reserve requirement ratio throughout this year. Meanwhile, producer price inflation (PPI) slowed from 7.3% in March to 6.8% in April. The April reading came in below market expectations of a 7.0% increase, which has been seen as a signal of moderation in prices going forward along, supported by a favourable comparison base in the second half of the year. The annual PPI average inched up to 6.1% in April from 6.0% in March.

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