More policy easing likely as economy recovers

China's economy is showing fresh signs of modest recovery, while pressures from still-weak demand remain, heightening the need for more stimulus to bolster the world's second-largest economy, analysts said. They also said that policy easing is likely to continue in the following months, including a small uptick in the fiscal impulse and further reductions in …

China’s economy is showing fresh signs of modest recovery, while pressures from still-weak demand remain, heightening the need for more stimulus to bolster the world’s second-largest economy, analysts said.

They also said that policy easing is likely to continue in the following months, including a small uptick in the fiscal impulse and further reductions in banks’ reserve requirement ratio — the proportion of deposits that banks must keep in cash as a reserve — and policy benchmarks for interest rates.

Their comments came as data from the National Bureau of Statistics showed on Saturday that the country’s consumer price index, which is a key indicator of inflation, rose 0.3 percent year-on-year in April after a 0.1 percent gain in March.

The core CPI, which excludes volatile food and energy prices and is deemed a better gauge of the supply-demand relationship, grew 0.7 percent year-on-year in April, after a 0.6 percent increase in March.

“The improvement in the CPI indicates that China’s economy is steadily recovering and the economy’s endogenous driving force is strengthening. The consumer demand recovery trend has been further consolidated,” said Zhang Xuewu, head of the price analysis and forecasting division at the National Development and Reform Commission’s Price Monitoring Center.

Zhang said he anticipates a modest rise in overall price levels, as domestic demand is set to continue to improve, with a series of policies aimed at boosting consumption and expanding investment taking effect, such as advancing large-scale equipment renewal and trade-in of consumer goods.

Wu Chaoming, deputy director of the Chasing International Economic Institute, estimated that the CPI may rise around 0.2 percent year-on-year in May.

While China’s consumer prices stabilized in April, the growth in the nation’s producer price index, which gauges factory-gate prices, stayed negative for the 19th consecutive month, dropping 2.5 percent year-on-year in April, following a 2.8 percent fall in March, the NBS said.

Wu said he anticipates that the PPI decline may narrow to 1.6 percent in May amid policy support, even though it is likely to register negative growth for the full year.

The persistently low price levels have received attention from policymakers. The People’s Bank of China, the country’s central bank, said on Friday in its first-quarter monetary policy report that it “will treat maintaining price stability and promoting moderate price recovery as key considerations in the formulation of monetary policy”.

The PBOC report said the fundamental reason for current low price levels is insufficient demand compared with supply in the real economy, instead of inadequate money supply, adding that price levels are expected to mildly recover during the rest of the year.

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