Inflation in China is significantly lower than in developed countries. According to March data, inflation in the country decreased by 0.3% in March, well below the expected increase of 0.2%. In doing so, it completed an annual increase of 0.7%, below the expected increase of 1%, which is also the figure of the previous month. In fact, inflation in China is registering the slowest increase in 18 months.
In other words, inflation surprised with a drop, but if the whole world wants to lower inflation – in China the situation is the opposite: it needs an increase in inflation. The inflation target in the country is 3%, which means the government wants to see inflation rise, but last year inflation was only 2% and now it is decreasing. In fact, it shows that the country is recovering more slowly from the lockdowns of the Corona crisis, which it lifted only in the last few months – the public is still spending less money than the country would like.
At the same time, the producer price index in China completed an annual decrease of 2.5%, in accordance with expectations and compared to an annual decrease of 1.4% in last month’s data. This is the sharpest drop since June 2020.
On a global level, the problem is that weakness in China may affect global companies whose main production is in China.
The central bank of China is not really independent and when it lowers the interest rate it means that this is what the Chinese government wants. In March the interest rate unexpectedly dropped by 0.25% and it is now expected to remain unchanged in April. The interest rate in the country is 3.65%
The gross domestic product (GDP) figures for the first quarter are expected to be published on April 18 and the question is how much additional support the government will provide for growth in China.
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