China PBOC central bank expects ‘U-shaped’ recovery in consumer prices

BEIJING — The People’s Bank of China said Thursday it expects consumer prices to pick up this year, and that the central bank is not expecting inflation or deflation to become a significant problem for China.

China’s consumer price index hit an 18-month low in March, and rose 0.7% year-on-year. The lackluster inflation print has added to concerns of soft demand by Chinese consumers.

However, retail sales for March grew by a more-than-expected 10.6% from a year ago.

“As the effect of financial support becomes more evident, consumer demand has hope to recover further, and in the second half of the year prices may gradually recover to the average level of past years,” said Zou Lan, director of the PBOC’s monetary policy department.

That’s according to a CNBC translation of his Mandarin-language remarks.

“For the whole year, CPI will form a U-shaped trend,” he said. China has set a CPI target of around 3% for the year.

Zou added that in the medium to long term, China’s economy has no basis for an inflationary or deflationary trend. He claimed that’s because demand and supply in China’s economy are even, and monetary policy is “reasonable.”

China’s central bank has kept monetary policy relatively loose compared with the U.S. Federal Reserve’s aggressive rate hikes to tackle inflation.

Looking ahead, Zou said China’s monetary policy would be “targeted and effective” in order to support “stable growth.”

Zou also noted encouraging signs of activity in the real estate sector, and warned against speculation in the industry.

He mentioned the Silicon Valley Bank fallout as a development that has increased attention on interest rate risks. Against that backdrop, he said China’s monetary policy would remain “stable.”

He was speaking with reporters at a regular PBOC press conference to discuss first quarter economic data that was released this month.