China's consumer prices edged up for a third consecutive month in April, while factory gate prices continued to decline.
This data suggests a possible improvement in domestic demand, offering a glimmer of hope as Beijing navigates challenges to bolster its economy.
Inflation Edges Up, Imports Data Encouraging
These closely watched numbers follow better-than-expected import data for April. This trend hints that the flurry of recent policy support measures might be reviving consumer confidence. According to data released by the National Bureau of Statistics on Saturday, consumer prices inched up 0.3% year-on-year in April, exceeding the 0.2% increase predicted by a Reuters poll and surpassing the 0.1% rise observed in March.
Core Inflation Rises, Services Demand Potentially Rebounding
"Excluding food and energy prices, the consumer inflation data suggests a potential comeback in demand, particularly within the services sector," commented Xu Tianchen, a senior economist at the Economist Intelligence Unit. Core inflation, which excludes volatile food and fuel prices, rose to 0.7% in April, compared to 0.6% in March.
Mixed Signals and Need for Further Support
The overall Consumer Price Index (CPI) also climbed slightly by 0.1% compared to the previous month, outperforming the poll's prediction of a 0.1% decline and reversing the 1% drop witnessed in March. However, many China watchers remain cautious. They believe Beijing faces significant challenges to maintain this momentum. Official surveys indicate a slowdown in factory and service activity, and the prolonged housing crisis shows no signs of easing. These factors reinforce the argument for further policy support measures.
Potential Drivers of Price Increases
"Price hikes by utility companies could be another factor driving inflation," Xu added. "Fiscal strains faced by some local governments are impacting the subsidies they receive. This could be forcing them to pass on these additional costs to households to make ends meet."
Chinese officials are grappling with a municipal debt burden of $13 trillion. The State Council, or cabinet, has instructed heavily indebted local governments to delay or halt certain state-funded infrastructure projects in an attempt to manage this challenge.
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Source: Reuters
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