Industry, inflation may have cooled in April
(bloomberg)
Updated: 2005-05-16 09:13

China's industrial production in April probably rose at the slowest pace this year and inflation likely cooled after the government restricted investment to ease shortages of power, transport and raw materials.

Production rose 14.6 percent from a year earlier and consumer prices increased 2.4 percent, according to the median estimates in Bloomberg News surveys of economists. The gains would be the smallest since December, allowing for distortions caused by changes in the timing of the Lunar New Year holiday. The figures will be released this week in Beijing.

Slowing gains in output and consumer prices may deter the government from taking further steps to cool growth in Asia's second-largest economy. Premier Wen Jiabao last year ordered banks to restrict lending to industries including real estate, autos and steel and rules governing property loans were further tightened last month.

``The government will maintain vigilance, especially for any potential inflationary problems, and while there are still specific targets such as real estate, they will still wait and see'' before taking further action, said Tai Hui, an economist at Standard Chartered Bank in Hong Kong.

Car sales, which rose 15 percent to 2.33 million units in 2004, fell 3.2 percent in the first quarter, prompting manufacturers to scale back production. Output in the first quarter fell 1.8 percent to 825,000 units according to the China Association of Automobile Manufacturers.

Autos, Steel

Sliding auto production and government efforts to cool property development are helping damp demand for steel. Production of steel products in the first quarter was flat from the previous three months and year-on-year growth moderated to 21 percent from 34 percent in the year-earlier period.

The Shanghai Post reported on May 12 that consumer prices rose 1.8 percent in April, which would follow a 2.7 percent increase in March and be the smallest gain since October 2003.

``Core inflation, excluding food, is reasonably stable, but the fall is a temporary phenomenon,'' said Huang Yiping, an economist at Citigroup Inc. in Hong Kong. ``Pressure on inflation is growing from higher raw-material prices, labor costs and energy prices.''

Producer prices in April rose 5.8 percent, the fastest pace in three months, the statistics bureau said yesterday. Crude-oil costs jumped 37 percent and coal prices increased 26 percent, it said.

Fuel Prices

To reflect rising fuel costs, the government is allowing prices of gasoline, diesel and electricity to be raised. Retail prices of gasoline were increased by about 8 percent in March, and diesel prices this month were lifted by more than 4 percent. Electricity prices were raised by an average 0.0252 yuan (0.3 cent) per kilowatt-hour from May 1.

So far, rising energy prices have had little impact on consumer spending in the world's most-populous nation. Retail sales probably gained 13.5 percent in April, according to the Bloomberg survey. Using combined figures for January and February to allow for the Lunar New Year, that would be the 13th straight month that sales have climbed more than an eighth.

``People are spending more because their incomes are growing and the government has been increasing farmers' incomes by cutting agriculture taxes,'' said Dariusz Kowalczyk, senior investment strategist at CFC Securities in Hong Kong. ``This is supporting consumer spending and helping the government to rebalance growth away from excessive investment and toward consumption.''

Per capita disposable incomes in urban areas, home to a third of the nation's 1.3 billion people, rose 11 percent from a year earlier to 2,938 yuan in the first quarter, and those in the countryside increased 16 percent to 967 yuan, the statistics bureau said on April 20.

The following table shows economists' forecasts for the year- on-year percentage increases in industrial production, retail sales and consumer prices in April from a year earlier. The National Bureau of Statistics may report the data next week in Beijing.