April inflation data sharpen debate on need for more easing

China's consumer inflation remained modest in April, while producer prices' four-year slump moderated as commodity prices rebounded, easing concerns about deflationary risks to the world's second-largest economy.

But analysts disagreed on whether the price trends alone are compelling enough for the central bank to shift to a more cautious stance on interest rate cuts just yet, after lowering them six times since late 2014.

Strong March data had raised hopes the economy was bottoming out from a prolonged slump - possibly allowing the People's Bank of China (PBOC) to take its foot off the gas - but mixed April data so far and surging debt levels have fueled doubts about whether any recovery will prove sustainable.

"With regards to monetary policy, we do not expect inflation to play a large part in the central bank's thinking," said Chester Liaw an economist at Forecast in Singapore. "Inflation prints are not too high to dissuade them from further easing if need be, and not too low to warrant loosening."

The consumer price index (CPI) rose 2.3 per cent in April from a year earlier, largely due to a spike in food prices, particularly pork. The reading has now been at the same level for three months in a row, and April defied market expectations for a slight pick-up in inflationary pressures.

Non-food prices rose just 1.1 per cent, ticking up from March, but again not showing a build in price pressures that would be expected if the broader economy was suddenly perking up.

Producer price trends in April were more encouraging, with price declines easing to 3.4 per cent from a year earlier, less than the 3.8 per cent economists had forecast and a fall of 4.3 per cent in March. On a sequential basis, the producer price index (PPI) rose for the second month in a row.

HSBC believes downside risks to growth and inflation mean it is too early to change China's policy stance just yet.

But some analysts maintain that if inflation stays at current levels, there is less need for more cuts to interest rates or banks' reserve requirements.