China’s ‘bad’ inflation still better than deflation, says ANZ

China's consumer price index (CPI) rose by 0.3% year-on-year in April, according to data released by the National Bureau of Statistics on May 11, 2024. This figure, while positive, fell short of market expectations and was described as 'bad' inflation by analysts at ANZ Research. The bank's economists, however, argued in a recent note that this mild inflationary pressure is a preferable economic condition to outright deflation, as it indicates persistent, albeit weak, domestic demand and helps alleviate some debt burdens. The assessment from ANZ highlights a critical nuance in interpreting China's current economic data. The subdued CPI reading reflects ongoing challenges in consumer spending and a fragile post-pandemic recovery, with core inflation—excluding volatile food and energy prices—remaining particularly soft. This environment has prompted the People's Bank of China to maintain an accommodative monetary stance. The central argument from ANZ is that a low, positive inflation rate, even if disappointing, supports nominal GDP growth and corporate earnings more effectively than a deflationary spiral, which can lead to delayed consumption and investment as consumers and businesses anticipate further price declines. Looking forward, economists are monitoring policy responses and consumption trends for signs of a more robust recovery. The Chinese government has implemented various fiscal measures to stimulate demand, but their transmission to broader price levels has been gradual. The ANZ perspective underscores a broader global economic debate on managing 'low-flation' in major economies, positioning China's current experience as a cautious case study in balancing growth stability against deflationary risks.