Business / Markets

China's low inflation sparks fear of deflation

By Zheng Yangpeng (China Daily) Updated: 2014-05-10 07:19

China's PPI fell 2 percent in April from a year earlier, compared with a 2.3 percent decrease in March, according to NBS data. It's the 26th consecutive monthly decline for the indicator.

China's low inflation sparks fear of deflation

Of the 30 industrial sectors surveyed by the NBS, 16 recorded a decline in the factory price, led by the coal, non-ferrous metal and ferrous metal industries. Falling commodity prices and severe overcapacity in industries including steel and cement are the main reason behind the persistent decline, analysts said.

Manufacturing in April also concerned analysts. The HSBC/Markit manufacturing Purchasing Managers Index for last month edged up 0.1 percentage point from March to 48.1. It was the fourth month that the reading contracted, indicated by a result below 50.

Many economists have called for stronger measures to support the economy if the government's full-year goal of "about 7.5 percent" growth is to be realized. April's inflation data may give the People's Bank of China, the cental bank, room to relax monetary policy, they said.

"We believe it is time for the PBOC to contemplate easing monetary policy further," Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd, said in a note.

The risk of deflation has risen, and cutting banks' reserve-requirement ratio can help "meaningfully lower the lending rates facing Chinese enterprises", Liu said.

The PBOC may cut the reserve requirement ratio for banks by half a percentage point in both the second and third quarters and the government could roll out more loosening measures, Nomura Holdings Inc said.

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