Deflation ‘unlikely’ in near future despite weak growth of consumer prices: NBS

In general, the Chinese economy does not appear deflated and deflation is unlikely in the near term, National Bureau of Statistics (NBS) spokesperson Fu Linghui said on Tuesday.

Fu commented during a press conference as the NBS released key first-quarter economic data.

China’s GDP expanded 4.5 percent year-on-year to 28.5 trillion yuan ($4.15 trillion) in the first quarter, the fastest pace since the second quarter of last year, signaling a good start to a strong full-year recovery.

As to whether China faces deflation risks due to the weak growth of the consumer price index (CPI), Fu said that deflation internationally is defined as a sustained decline in the general level of prices, often accompanied by a reduction in money supply combined with an economic recession.

However, the CPI rose by a moderate 1.3 percent year-on-year in the first quarter. In terms of money supply, broad M2 money supply increased 12.7 percent at the end of March, a relatively fast rate of growth. China’s economy grew by 4.5 percent in the first quarter, picking up from the fourth quarter. “No aspect of the overall economic situation will appear deflated,” the spokesperson noted.

In March, the CPI rose by just 0.7 percent year-on-year while it was down 0.3 percent month-on-month, the NBS said.

Fu said that major reasons for the declining CPI growth were seasonal factors and drops in some food prices such as pork.

In addition, domestic energy prices have been affected by the international market. The slowing world economy has driven down energy prices, especially crude oil

China is unlikely to see a deflationary spiral as prices will steadily recover. Due to last year’s high base, the CPI increase in the second quarter may remain low, but it does not indicate deflation.

“As such statistical influences wane in the second half of the year, prices will return to a reasonable level,” Fu noted.

In terms of the producer price index (PPI), which fell 1.6 percent year-on-year in the first quarter, Fu said that lower materials costs for manufacturers were the main factor.

Since the start of the year, world economic growth has slowed, with weakened market demand, and commodity prices have fallen, leading to lower prices for domestic oil, non-ferrous minerals and related products. The high base last year will also affect the trend of the PPI this year, the spokesperson explained.

Domestic demand will continue to rebound, pulling up the PPI, but the input pressure of weak global commodity prices will persist. Coupled with a relatively high year-earlier base, the PPI may still decline in the near term, he said.

“As the domestic economy recovers and the base effect wanes, the PPI will gradually return to a reasonable level,” Fu said.
Source: Global Times