Chinese CPI moderates, PPI drops again

|By:, SA News Editor

China's inflation slowed to an 18-month low of 1.8% on year in April from 2.4% in March and came in below consensus of 2%

On month, China's CPI fell 0.3% vs -0.5% and -0.1%.

Factory-gate prices (PPI) dropped for the 26th consecutive month, declining 2% on year vs -2.3% previously and forecasts of -1.8%. The deflation demonstrates that "overcapacity remains relatively serious," the People's Bank of China said recently.

With other data indicating that China's economy is slowing down, economists attributed the fall in CPI to a weakness in demand. Today's data has increased expectations that the government will further ease monetary and fiscal policy.

"It's time for the People's Bank of China to cut the reserve requirement ratio," says ANZ economist Liu Li-Gang, adding that the risk of deflation is increasing. At the moment, major banks have to keep 20% of their deposits at the central bank, thereby restricting their lending abilities.

The Shanghai Composite is -0.2%.

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