PBOC May Require More Stimulus as Chinese CPI Rises at Slowest Pace in Over Two Years

China’s post-COVID economic recovery may require additional stimulus, as Chinese CPI rose at the slowest pace in over two years, and factory gate deflation worsened, according to data from the National Bureau of Statistics.

Chinese CPI increased by 0.1% YoY in April (slowest pace since February 2021), falling short of the 0.4% YoY rise projected in a Reuters poll and the 0.3% increase expected by the Bloomberg consensus. The CPI recorded a third consecutive monthly decline on a month-on-month basis, with consumption goods experiencing weaker prices, particularly food and household items.

In the meantime, core CPI inflation (excluding food and energy) remained at 0.7% YoY. That gauge has stayed at or below 1% for 13th consecutive months.

Meanwhile, the deflationary impulse in producer prices underlines the pressure on factories. In April, producer prices declined by 3.6% YoY, which was a greater decrease than in March and exceeded the expectations of economists (-3.3%e). This fall was mainly due to softer commodity costs.

The results have sparked speculation about whether the central bank will ease its policy, given that the US Federal Reserve has signaled a potential pause in interest rate hikes and the latest US data showed a cooling of inflation in April. Reuters (citing three sources familiar with the matter) noted China has already instructed its “big four” state-owned banks to cut deposit rate ceilings on some products by 30 basis points from May 15.