China Faces Rising Food Prices but Economic Vitality Drops Sharply... Struggling to Devise Countermeasures (Comprehensive)

[Asia Economy Beijing=Correspondent Park Sun-mi] As China's consumer prices continue to rise sharply amid the COVID-19 pandemic, economic vitality is increasingly weakening, deepening the government's dilemma in devising countermeasures.

On the 10th, China's National Bureau of Statistics announced that the Consumer Price Index (CPI) in March rose 4.3% year-on-year, while the Producer Price Index (PPI) fell 1.5%. The 4.3% increase in March CPI is 0.9 percentage points lower than the 5.2% announced in February. It is also lower than experts' forecast of a 4.9% increase for March. As a result, the CPI increase for the first quarter of this year was recorded at 4.9%.

By region, the CPI rose 4.0% in urban areas and 5.3% in rural areas. By category, food prices increased by 18.3%, whereas non-food prices rose only 0.7%. Among food prices, meat prices saw the largest increase at 78%. Pork (116.4%), beef (21.7%), and lamb (12.1%) recorded high growth rates in that order.

Although the production and supply of food products have improved compared to February despite the spread of COVID-19, the still-high food price inflation indicates that the shock caused by COVID-19 has not been fully overcome.

On the other hand, the PPI in March fell 1.5% year-on-year, marking a larger decline than in February. Since re-entering negative territory in February, it has recorded negative growth for two consecutive months.

The PPI, which reflects prices of raw materials, intermediate goods, and product shipments, is considered a leading economic indicator showing vitality in sectors such as manufacturing. A negative PPI growth rate is generally interpreted as a sign of deflation, suggesting that the economic slowdown in China due to COVID-19 may continue to accelerate.

The Ministry of Commerce of China also forecasted on the previous day that foreign trade, which was hit by COVID-19, is expected to improve significantly in March, but simultaneously noted that the global spread of COVID-19 is gradually impacting the world economy and international trade. Some traders are experiencing disruptions in new orders due to cancellations or delays. The textile and apparel sectors are particularly hard hit. The ministry stated it will closely monitor and assess how the global spread of COVID-19 affects China's trade, revealing that economic uncertainties caused by COVID-19 remain.

Although active fiscal policies and eased monetary policies are needed to revive the economy damaged by COVID-19, the government has been cautious about loosening monetary policy like other countries such as the United States and Europe. The continued rise in prices for ordinary citizens due to COVID-19 is one of the factors limiting the government's room to implement monetary policy. On the 3rd, Liu Guochang, Deputy Governor of the People's Bank of China, expressed at a State Council-hosted press conference that "currently, the CPI is clearly higher than the one-year deposit interest rate," emphasizing the need for caution in lowering the benchmark interest rate.

However, the Chinese government also strongly feels the necessity to link the benchmark interest rate, which has been frozen for over four years, with market interest rates, so there is a possibility that a slight cut in the benchmark interest rate may accompany a monetary policy focused on lowering the bank reserve requirement ratio in the near future.

The Central Committee of the Communist Party of China and the State Council jointly announced a comprehensive market reform plan document the previous day, stating that "gradually unifying deposit and loan benchmark interest rates with market interest rates will be promoted," indicating that the option of cutting the benchmark interest rate is being considered. China has maintained the one-year deposit benchmark interest rate and loan benchmark interest rate at 1.50% and 4.35%, respectively, since October 2015 for over four years.

This content was produced with the assistance of AI translation services.