Factory gate price deflation in China weakens in April

Deflationary pressures bearing down on the Chinese economy lessened in April as energy prices rebounded and a rise in pork prices accelerated.

The country's consumer price index rose at a 2.3% year-on-year clip in April, holding steady for a fourth consecutive month, in-line with consensus estimates.

Non-food inflation edged higher by a tenth of a percentage point to 1.1% from 1.0%, helped by the first monthly increase in regulated domestic fuel prices, Julian Evans-Pritchard at Capital Economics said in a research report sent to clients.

Food price inflation on the other hand drifted lower from 7.6% year-on-year to 7.4%. Pork prices continued to fly higher at an accelerating pace, rising by 33.5%, up from a 28.4% clip observed in March, but that was offset by declines in vegetables prices.

Factory gate inflation on the other hand strengthened from the -4.3% year-on-year drop observed in March to -3.4% in April (Capital Economics: -4.5%).

"Following 26 straight months in negative territory, the m/m change in producer prices was positive in March and April, which should ease concerns over deflation," the think-tank said.

A recovery in oil and natural gas prices and a surge in those for steel appeared to be responsible, Evans-Pritchard noted.

Regarding the outlook, Capital Economics expected CPI to stay at around current levels for the remainder of the year, with an extension of the recovery in producer also on the cards as commodity price inflation continues to ease.