China’s inflation rate fell for a second month in March even as the economy showed signs of picking up, a warning sign of the strength of the country’s economic recovery after nearly three years of strict epidemic prevention and control.
China’s National Bureau of Statistics announced on Tuesday that the CPI rose just 0.7% year-on-year in March, the lowest year-on-year increase since September 2021.
That compares with a 1.0% year-over-year CPI increase in February, and economists polled by The Wall Street Journal had forecast a 0.9% year-over-year increase in March.
As can be seen from the figures, China’s lifting of anti-epidemic restrictions has not produced the kind of widespread price pressures that led to a sharp rise in inflation. Some major economies, such as the United States, have experienced faster economic growth after the worst of the new corona epidemic has passed, and prices have risen and inflation has soared.
The pullback in China’s inflation rate is partly due to a weak labor market, which tends to keep prices from rising. Unemployment in China remains high, particularly among young people, with the unemployment rate for 16 to 24-year-olds just over 18% in February.
But it could also mean that domestic spending has not improved as strongly as hoped. Signs from business surveys, movie box office receipts and traffic and public transport data point to a rebound in China’s economy in the first quarter of the year as consumers flock back to shops and restaurants, but other data suggest consumers have more interest in spending on items Openings on big ticket items support a cautious approach while continuing to save money instead of taking it out and spending it.
Ting Lu, chief China economist at Nomura in Hong Kong, said the slowdown in inflation suggests the post-pandemic recovery remains weak.
Official data on China’s economic growth in the first quarter is due next Tuesday. The 17 economists surveyed by The Wall Street Journal expect China’s economy to grow by around 4% year on year in the first quarter. The government has set a full year growth target of around 5%.
Economists say the real test of growth will come later this year, when the immediate boost to spending from Beijing’s sudden decision in December to lift anti-epidemic restrictions wears off. In addition, other engines of China’s economic growth are already experiencing problems. China’s exports are dwindling as Western consumers and businesses grapple with steadily rising interest rates, while property construction has plunged after a long boom and policymakers’ push for deleveraging.
Still, lower inflation compared to Western economies means that the PBOC should have more room to support the recovery with loose monetary policy.
Zhang Zhiwei, an economist at Pinpoint Asset Management in Shanghai, said the chances of a rate cut by the People’s Bank of China had increased.
Data on Tuesday showed that the moderation in inflation was driven by softer food price inflation, with vegetable prices falling 11.1 per cent in March from a year earlier. Non-food inflation also moderated.
Meanwhile, PPI fell 2.5% year-on-year in March, more than the 1.4% drop in February, another sign of weaker inflationary pressures in China.
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