China Industrial Output, Inflation Boost Easing Odds

Output increased 9.3 percent from a year earlier, lower than all 32 estimates in a Bloomberg News survey and the biggest negative surprise in two years, data compiled by Bloomberg show. Consumer prices rose 3.4 percent from a year earlier, the National Bureau of Statistics said today, staying below the annual goal for the third month.

“This set of data will definitely force the government’s hand to ease,” said Yao Wei, China economist for Societe Generale SA in Hong Kong. A cut in the reserve ratio may happen “any minute now,” and “more fiscal easing is also highly likely,” Yao said.

China’s retail sales in April gained 14.1 percent from a year earlier, the least since February 2009, compared with estimates of 15.1 percent and March’s 15.2 percent increase. Fixed-asset investment excluding rural households rose 20.2 percent in the first four months of the year, the lowest for the period since 2001, compared with forecasts for a 20.5 percent gain.

Stocks Fall

The benchmark Shanghai Composite Index (SHCOMP) fell 0.5 percent today as of 2:23 p.m. local time after touching a two-week low. China’s one-year interest-rate swap was set for the biggest weekly decline in five months.

A separate Ministry of Finance report today showed China’s April fiscal revenue rose 6.9 percent from a year earlier, compared with an 18.7 percent gain in March.

The People’s Bank of China has held off for more than two months in adding to the two reductions in banks’ reserve requirement ratio after the latest cut in February.

It is “really urgent to conduct more monetary easing and fiscal stimulus policy,” said Banny Lam, head of global economic research at CCB International Securities Ltd., a unit of China Construction Bank, one of the four large state-owned banks.

Lam said he expects a 50-basis-point cut in banks’ reserve- requirement ratios before the end of May. The central bank may lower the ratio this weekend or at latest by next weekend, said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai.

Inflation Target

Consumer price inflation matched the median estimate in a Bloomberg News survey of 35 economists and compares with the government’s 4 percent annual goal.

The increase in food prices slowed to 7 percent last month from a year earlier, while costs fell 0.9 percent from the previous month, the statistics bureau said.

The producer-price index dropped 0.7 percent in April from a year earlier after declining 0.3 percent in March, the statistics bureau said, the first back-to-back decline since 2009. Prices rose 0.2 percent in April from March, the report showed.

China needs to pay attention to upside price risks, the People’s Bank of China said in its first-quarter monetary policy report published yesterday. “Although overall price gains are staying on a moderating trend, they are not yet stable,” the central bank said.

The economy expanded 8.1 percent in the first three months from a year earlier, the fifth quarterly deceleration and the slowest pace in almost three years, as Wen’s crackdown on the property market cooled domestic demand and Europe’s debt crisis crimped overseas sales.

Trade Below Estimates

The nation’s exports and imports both rose less than estimated in April, a customs bureau report showed yesterday.

Elsewhere in Asia, Malaysia’s central bank is forecast today to hold its benchmark interest rate at 3 percent, while Sri Lanka may raise its repurchase rate to 8 percent from 7.74 percent, according to surveys of economists.

In Europe, Germany’s consumer price index rose 0.2 percent in April from a month earlier, compared with 0.3 percent in March. Spanish consumer inflation may have slowed to 1.1 percent in April from the prior month.

In the U.S., producer prices in April were probably unchanged for a second straight month, with core wholesale prices gaining 0.2 percent from March after a 0.3 percent increase the previous month, a survey of economists showed.

Sany Forecast

Sany Heavy Industry Co., China’s biggest maker of excavators, may cut its unit-sales forecast for this year as government efforts to curb property speculation slow construction. “Given the weak market, I think there’s a need to adjust our sales target,” Xiang Ru’an, the company’s vice president, said in a May 5 phone interview.

China’s power output in April grew 0.7 percent from a year earlier, the slowest pace for a non-Lunar New Year month in almost three years. It increased 7.2 percent in March.

“To see the number so sharply down, I think the problem of macro issues comes into question,” said Michael Parker, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “It’s closely linked to the economy. This is certainly not a good sign.”