Consumer prices in China to rise at ‘moderate pace’ this year
Mainland China consumer prices are expected to rise at a moderate pace, but the world’s second-largest economy is still expected to be hit hard by weak global demand and stockpiles of certain goods, according to a government report.
The report by the price monitoring centre of the National Development and Reform Commission also warned that falling producer prices could exacerbate the business outlook for companies plagued by overcapacity. The report, published by the China Securities Journal, said: “[Overall] the situation of price changes in 2016 should turn out to be better than the previous year ... In some sectors prices will continue to fall and that will add downward pressure on some companies and the economy.”
But the economic outlook would remain bleak owing to uncertainties in the global economy and the urgent need for the mainland to clear inventories in industries such as steel and coal.
China’s consumer price inflation rises 2.3pc – more than expected – as food prices surge, but trend ‘not likely to go on’
The mainland’s economy expanded 6.9 per cent in 2015, the slowest pace in 25 years as the leadership strived to transform the growth model by shifting focus from exports and investment to domestic consumption.
Beijing started to embrace a flexible monetary policy aimed at sustaining growth last year, which led to price increases in food and services. But inflation would have a minimal impact on the national economy, the top planning agency said.
An orderly increase in prices should benefit overall growth as companies expand production to tap consumer demand.
Mainland China consumers more upbeat than regional peers
But inflation resulting from monetary easing would not be enough to improve the fundamentals of the economy as it made little difference to the balance between supply and demand, the report said.
“It will be difficult to further drastically ease monetary policies this year and it’s time for China to fine-tune fiscal policies to stimulate further growth,” said Guotai Junan Securities chief economist Lin Caiyi said.
Fiscal policies include adjustments to the tax structure and planned government spending.
Consumer inflation climbed to 2.3 per cent in February, the fastest rate since July 2014. The central government is aiming for consumer inflation to rise to about 3 per cent this year, after 1.4 per centfor all of last year.
But declining producer prices, or factory gate prices for goods, would continue to eat into the profits of companies in industries mired in redundant capacity, the report said.
