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China’s inflation was below the government’s target for a third month, giving Premier Wen Jiabao more room to ease policy to stimulate an economy that expanded last quarter at the slowest pace since 2009.
Consumer prices rose 3.4 percent from a year earlier after a 3.6 percent gain in March, the National Bureau of Statistics said today. That matched the median estimate in a Bloomberg News survey of 35 economists and compares with the government’s 4 percent annual goal.
Inflation under control may boost odds of additional monetary or fiscal stimulus after Wen’s campaign to rein in property and consumer prices slowed growth in the world’s second-largest economy. The government may also have an easier path to loosen controls on prices of resources and utilities.
“Moderating inflation will leave the window open for further policy easing in coming months,” Shen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd. in Hong Kong, said before the release. “Authorities may gradually ease some restrictions on the property market and accelerate infrastructure projects and social housing construction to boost growth.”
Shen, who previously worked for the International Monetary Fund and European Central Bank, said those easing measures may be accompanied by three more cuts in the banks’ reserve- requirement ratio over the rest of 2012.
Producer Prices Drop
The producer-price index fell 0.7 percent in April from a year earlier after dropping 0.3 percent in March, the statistics bureau said, the first back-to-back decline since 2009.
The Shanghai Composite Index fell 0.3 percent as of 9:38 a.m. local time, on track for the fourth decline in five days.
China needs to pay attention to upside price risks, the People’s Bank of China said in its first-quarter monetary policy report published yesterday. “Although overall price gains are staying on a moderating trend, they are not yet stable,” the central bank said.
The economy expanded 8.1 percent in the first three months from a year earlier, the fifth quarterly deceleration and the slowest pace in almost three years, as Wen’s crackdown on the property market cooled domestic demand and Europe’s debt crisis crimped overseas sales.
The growth slowdown may have bottomed out, economists at banks including Bank of America Corp., Goldman Sachs Group Inc. and JPMorgan Chase & Co. have said, pointing to a pickup in industrial production and a surge in new loans in March.
The statistics bureau will release industrial output, retail sales and fixed-asset investment data later today.
Production Forecast
Production may have increased 12.2 percent last month from a year earlier, after an 11.9 percent gain in March, according to the median estimate in a Bloomberg survey. Retail sales probably rose 15.1 percent, little changed from March, while fixed-asset investment excluding rural households jumped 20.5 percent in the first four months of the year, separate surveys showed.
The nation’s exports and imports both rose less than estimated in April, a customs bureau report showed yesterday, adding pressure on the government to relax policies to sustain growth.
China has “certain room” to loosen monetary policy if inflationary pressures ease, Song Guoqing, an adviser to the central bank, said April 28. Inflation is expected to average 2.8 percent this year while the economy will expand 8.4 percent, Song said at a forum in Beijing.
The People’s Bank of China has held off for more than two months in adding to the two reductions in banks’ reserve requirement ratio after the latest cut in February.
Rising Wages
Mizuho’s Shen said inflationary pressure in China will persist this year, citing drivers including rising wages and “loose” monetary policies adopted by developed nations. He estimated gains in consumer prices will average 3.8 percent.
The Ministry of Industry and Information Technology said April 25 that average wages across the nation may increase by about 20 percent this year.
Falling global commodity prices may help counter rising wage costs. China cut retail gasoline and diesel prices by as much as 3.5 percent this week, the first reduction since October, after international crude costs fell.
