China Consumer Inflation Edged Up in April -- Update

By Mark Magnier Features Dow Jones Newswires

Consumer inflation in China remained mild in April, edging up on higher costs for rent, education and other nonfood items, while producer prices rose at a slower pace in a sign of weak underlying demand.

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The consumer-price index was up 1.2% from a year earlier, the National Bureau of Statistics said Wednesday, accelerating from 0.9% in March and slightly outpacing the 1.1% forecast of economists polled by The Wall Street Journal. Producer prices decelerated for a second consecutive month, to a below-expectation 6.4% from March's 7.6%.

"Although the CPI picked up a bit, it's still very weak," said Macquarie Group Ltd. economist Larry Hu. "Even as the Chinese government is busy deflating asset bubbles in the financial system, it should be careful of the implications for the real economy."

Beijing in recent months has selectively tightened short-term interest rates in the interbank market and nonbanking parts of the financial system, as concerns grow over speculative property markets and rising debt.

But April's weak price data suggest that tightening policy too quickly could worsen the economic outlook, economists said. "The real economy is still quite weak" and "already past its peak for this year," Mr. Hu added. "We're moving from tailwind to headwind."

Food costs in April were down 3.5% from a year earlier, led by lower pork and vegetable prices, compared with March's 4.4% drop. Offsetting this was a 2.4% increase in nonfood prices, including higher oil prices working their way through China's transport and utilities sectors.

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Gao Yating, a 30-something employee at a Beijing food market, said egg and green-vegetable prices have fallen by up to 50% in the past few months while her housing costs have increased.

"Since last summer, our rent has gone up from 1,800 yuan [$260] to 2,200 yuan and now takes a large part of my salary," said Ms. Gao, wearing a green dress. "We can save on food and clothing, but we can't do much to control rent."

Economists expect growth to slow in coming months along with housing starts--as purchasing restrictions in top markets tamp down speculation--further reducing building-materials prices.

Higher industrial prices over the past half year have boosted corporate earnings--first-quarter profits were up by as much as 300% for companies in such businesses as coal and petrochemicals--but these are likely to decline as commodity prices fall, economists said.

"Beware of reflation Chinese-style," said Diana Choyleva, an economist with Enodo Economics, in a report. "It is not indicative of strong growth."

First-quarter industrial profits were up 28.3% from a year earlier, slowing from the 31.5% pace for the first two months of the year, and are expected to weaken further.

While commodity companies have enjoyed higher returns, many in consumer-related business have been restrained by robust competition and government controls from raising their prices to reflect higher raw-material costs.

In March, the gap between the PPI and the CPI--a measure of the transmission of price increases--reached 6.7 percentage points, its widest since 1993, suggesting many downstream companies are being squeezed, according to DBS Bank.

"The recovery remains incomplete," the bank said.

Liyan Qi contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

May 10, 2017 00:32 ET (04:32 GMT)