MNI: China To Target 3% CPI Rise Despite Deflation Pressure

China will likely set its inflation target at around 3% y/y for 2024, despite the real level likely printing closer to about 1% due to sluggish demand, which will boost the chance of further central bank policy action, advisors and economists told MNI.

Chinese Premier Li Qiang will present the annual CPI target within his 2024 government working report on March 5 during the opening ceremony of the National Peoples’ Congress. The government has set the target at “around 3%” every year since 2015 except in 2022 when it increased it to “around 3.5%”. However, actual performance always prints lower than the target, with the widest gap occurring in 2023 when annual CPI grew by 0.2% y/y, the slowest expansion since 2009.

Lian Ping, chairman at the China Chief Economist Forum, told MNI, while authorities will likely set the target at around 3% again, actual CPI would increase by 1.5% y/y in 2024. Authorities should consider lowering the target as inflation will remain low over the foreseeable future in line with slow economic growth, Lian suggested. (See MNI: Soft China Inflation To Persist, Oversupply Will Weigh)

STRONGER INFLATION NEEDED

February CPI, which the National Bureau of Statistics will announce on March 9, will likely turn positive after four consecutive months in decline, however, many believe the economy will need stronger inflation to meet the government’s 5% GDP growth target. (See MNI: China Feb PMI To Remain Contractionary, More Rate Cut Seen)

A policy advisor familiar with monetary policy told MNI 2% of yearly CPI expansion would represent a more “comfortable level.” Anything lower would indicate weak demand in need of accommodative policy, the advisor added, noting CPI lower than 1% will add deflationary pressure to the economy.

He estimated annual CPI would print in a range of 0.5-1% should policy supportsfail to boost the property sector.

Luo Zhiheng, deputy dean and chief economist at Yuekai Securities Research Institute, predicted CPI would print at 0.6% y/y, while low inflation had pushed up real interest rates.

The advisor said the real interest rate had continued to rise over the past two years as the pace of the People’s Bank of China’s policy-rate reductions was slower than inflation’s decline, which increased funding costs across the economy. (See MNI PBOC WATCH: Hefty 5Y LPR Cut Aimed At Mortgage Support)