May 27, 2024

China’s Efforts to Cut Inflation Fall Short

The latest data underlined the challenges that China faces as it tries to tame inflation while at the same time issuing trillions of extra renminbi to prevent the currency from rising quickly against the dollar, which would erode the competitiveness of Chinese exports.

Consumer prices were 5.3 percent higher in April than a year earlier. That represented a slight improvement from March, when consumer prices were up 5.4 percent. But economists had expected inflation to edge down to 5.2 percent or below, and the government’s target for the full year is 4 percent, a level not reached in any month so far this year.

Many businesses across China say that they see healthy sales and have the profits or bank lines of credit to allow them to invest in further expansion.

“Our domestic market is doing very well and continues to expand,” said He Lei, the vice general manager of the Zhejiang Qingsen Textile Garments Company. “Our year-on-year growth in this sector has been 30 percent.”

The Shanghai Composite Index of shares fell 0.6 percent in the first half-hour of trading after the release of the economic data, as investors appeared to conclude that persistent inflation made it more likely that the government would raise interest rates again, after already doing so four times since October.

Other economic statistics also released by the Chinese government on Wednesday presented a picture of an economy still expanding briskly, signaling that recent government moves to tighten credit have not had much effect.

Banks issued 739.6 billion renminbi ($114 billion) in new loans last month, higher than economists’ expectations of 700 billion. The People’s Bank of China, the country’s central bank, has been trying to restrain lending by raising repeatedly the percentage of bank assets that must be kept on deposit with it, but this has been offset by the large-scale issuance of renminbi to pay for currency market intervention, holding down the currency’s value against the dollar.

Retail sales jumped 17.1 percent in April from a year ago. Fixed asset investment grew even faster, climbing 25.4 percent last month from a year earlier, although Chinese fixed asset investment figures tend to be inflated somewhat by rising land prices, a factor that Western statisticians try to exclude.

Western economists had expected inflation to slow more quickly because food prices in China are flat or falling this year, unlike in many countries. Food is the largest component of China’s consumer price index, making up a third of it.

After vegetable prices surged at the end of 2009, partly because of a harsh winter, the Chinese government urged farmers across the nation to plant more vegetable farms. This winter was milder, and vegetable production surged so sharply that prices have fallen, leading to widespread complaints from farmers but limiting the cost of groceries for urban families.

Many economists had expected falling food prices to offset more fully the effects of rising world prices for many commodities, like oil and cotton. Changes in wholesale food prices are quickly and entirely reflected in changes in the prices that consumers pay for food at supermarkets and corner stalls.

But Jun Ma, an economist at Deutsche Bank, estimated in a research note on Tuesday that when prices of other commodity prices rise or fall in China, the price of the eventual retail product only rises or falls by one-sixth as much in percentage terms. That is because other raw materials, like rubber or cotton, tend to play a small role in the overall price of products like tires or clothing.

Hilda Wang contributed reporting.

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