A customer is choosing washing products in a supermarket in Nanjing. More government policies to encourage consumption may help China increase the proportion that consumption contributes to GDP growth. [Photo / For China Daily]

Stubbornly high CPI may hamper growth in the long run, said analysts

BEIJING - China's domestic consumption may increase in April, in a rebound from the first quarter's slowdown, according to analysts.

However, they warned that the expectation of higher inflation is likely to reduce consumer spending for the whole year.

In April, total retail sales of consumer goods, a main gauge of domestic consumption, may rise by 18.3 percent from a year earlier, compared with 17.4 percent in March, according to a report from China International Capital Corporation Ltd.

Other analysts have forecast year-on-year growth in total retail sales of consumer goods to be between 16.3 percent and 18 percent, indicating a steady rise in retail sales in the domestic markets.

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The April total retail sales index will be officially released on Wednesday, according to the National Bureau of Statistics (NBS). However, the country's stubbornly high consumer price index (CPI), a main gauge of inflation, may curb demand in the long run, analysts said.

"The rise in consumer income, particularly in rural areas, is expected to drive up domestic demand and contribute to higher retail sales in April," said Shen Jianguang, chief economist of Mizuho Securities Asia Ltd.

More government policies to encourage consumption, such as the proposed move to raise the minimum personal income tax threshold from 2,000 yuan ($306) to 3,000 yuan, will help China increase the proportion that consumption contributes to GDP growth, said Shen.

In the first three months of this year, the total figure for retail sales of consumer goods was 4.29 trillion yuan, a year-on-year rise of 16.3 percent, according to the statistics bureau. The growth rate declined from 22 percent in the last quarter of 2010.

Because of restrictions on purchases of automobiles and new homes, sales of motor vehicles and furniture slowed in the first quarter of this year. The year-on-year growth rate of motor vehicles was 14.2 percent, 25.6 percentage points lower than that in the same period last year. The increase of furniture sales was 24.5 percent, 13.1 percentage points lower than the year-earlier figure, according to the NBS.

Economists have predicted the CPI may be 5.4 percent or even higher in April, indicating strong inflationary pressure, and much higher than the government's target of 4 percent for the whole year. The figure soared to a 32-month high of 5.4 percent in March, compelling the central bank to further tighten monetary policy.

Research from the Chinese Academy of Social Sciences (CASS) said that soaring inflation will result in a decrease in total retail sales of consumer goods in the second half of the year.

Research from CASS projected that total retail sales may reach 18.3 trillion yuan in 2011, with year-on-year growth of 16.6 percent.