Inflationary pressures in April, which had previously concerned investors, are now showing signs of easing. According to multiple sources, the Consumer Price Index (CPI) for April is expected to drop slightly from the 8.3% recorded in March, potentially reaching around 8.1%. This decline was reflected in the market, as on April 30—the last trading day before the May Day holiday—investors reacted positively to the lower-than-expected inflation data and the influx of new funds. As a result, the Shanghai Composite Index surged by 4.82%, closing at 3,693.
Chen Jijun, a macro analyst at CITIC Securities, noted that compared to the high inflation seen in February and March, April’s figures are expected to be lower, signaling a gradual easing of inflationary pressures. One of the key factors behind this slowdown was the drop in agricultural product prices, particularly vegetables. Despite rising food costs earlier in the month, vegetable prices fell sharply in the last two weeks of April due to an oversupply, with some varieties dropping by as much as 50%.
Zhang Jie, chief analyst at Hujie Investment, even predicted that CPI could fall further to 7.9% in April, suggesting that inflation will continue to decline in the coming months after peaking at 8.7% in February. However, while overall inflation is slowing, there are still three main factors keeping upward pressure on prices: persistently high international crude oil prices, continued growth in the Producer Price Index (PPI), and a rise in core inflation. Additionally, food prices—especially rice—are beginning to climb again.
Economists predict that investment and exports will continue to decline in April, while consumption is expected to grow steadily. Professor Liu Yuanchun, vice president of the School of Finance at Renmin University, said that although the economy faced a slowdown in the first quarter, the extent of the decline needs to be closely monitored. He emphasized that policy adjustments should be based on the evolving trend of aggregate demand.
Liu also pointed out that current inflation is largely structural, driven mainly by rising food prices. “People are becoming more tolerant of inflation, and as long as it remains stable, we shouldn’t suppress economic growth to fight it,†he said.
The government has shifted its focus from the traditional “double prevention†strategy—preventing both overheating and inflation—to a new approach aimed at preventing both inflation and economic downturns. Liu Yuanchun explained that in a large economy like China, maintaining high growth is essential to avoid social instability and rising unemployment.
Chen Jijun added that the export decline in 2008 is no longer a surprise, and it's time to boost domestic demand to offset falling exports.
With the changing economic landscape, many analysts believe that interest rate hikes in May are unlikely. Morgan Stanley suggested that the global economic slowdown caused by the U.S. recession may help cool the Chinese economy without the need for drastic austerity measures. Similarly, Domo maintained its prediction that no rate increases would occur in 2008.
Zhang Hao warned that continuing strict regulation could lead to economic risks, while relaxing controls might push up producer and consumer prices. He recommended focusing on improving social security systems and promoting technological innovation to support long-term economic restructuring and reduce environmental pressures.
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