China’s consumer price index rose 0.1% in April year-on-year, the slowest since early 2021. Month-on-month, prices declined by 0.1%.

Economists surveyed by Reuters expected to see consumer prices rise 0.4% from a year ago and remain unchanged from the previous month.

April’s reading comes after China’s inflation rate eased to 0.7% in March after marking a recent peak of 2.8% in September.

Inflation in China was led by food and services, according to the National Bureau of Statistics – food prices rose by 0.4% and service prices rose 1% from a year ago. Consumer goods prices meanwhile fell 0.4%.

The onshore Chinese yuan weakened by 0.04% to 6.9428 against the U.S. dollar shortly after the release.

China’s producer price index, which measures prices paid by wholesalers, fell 3.6%. Economists surveyed by Reuters expected to see a decline of 3.2% year-on-year after dropping 2.5% in the previous month.

That’s a stark contrast to the latest U.S. inflation data overnight which showed consumer prices rose 4.9% in April – easing in the wake of the Federal Reserve’s efforts to tame inflation by hiking rates 10 consecutive times.

Inflation has largely moderated in China following its reopening, prompting market watchers to question whether the world’s second-largest economy is heading into deflation, BofA’s chief China economist Helen Qiao wrote in a Tuesday note.

“It almost appears that when major central banks find it hard to tame the inflation beast, the [People’s Bank of China] would have ranked high on the scorecard for inflation control,” she wrote.

Qiao added that China has managed to keep its consumer price index inflation rate at an average of 1.8%, which is close to the lowest 3-year average reading since 2003.

Now, China’s core CPI inflation is already well below Japan’s levels, BofA economists noted. 

Though not yet at deflationary levels, China’s low inflation is likely driven by insufficient demand.

“Households, though have already seen a notable pent-up demand from tourism during the recent holidays, are still cautious on goods spending, especially for large ticket items (white goods, autos etc.,),” Qiao wrote in the note.

“The weak labor market as well as the slower recovery in the property market continued to weigh on consumer sentiments,” she wrote.

– CNBC’s Lim Hui Jie contributed to this report

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