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China April CPI rose 1.8%, below expectations

China's annual consumer inflation rose 1.8 percent in April, slower than March's 2.4 percent rise, data on Friday showed.

The reading was below expectations for a 2 percent rise in a Reuters poll. On a month-on-month basis CPI fell 0.3 percent, below expectations for a 0.1 percent decline.

"It seems China is catching a whiff of that deflationary problem," Yao Wei, China economist at Societe Generale told CNBC.

"For an economy with a nominal GDP (gross domestic product) growing at 8 percent, this is an extremely low level of inflation, or rather deflation actually. It seems that all these corrections that China needs to work on its debt are having an impact on the economy and we think its going to last, the low inflation or PPI (producer price) deflation," she added.

Produce is displayed for sale at a market in Beijing, China.
Keith Bedford | Bloomberg | Getty Images
Produce is displayed for sale at a market in Beijing, China.

Producer prices fell 2.0 percent on year in April, below expectations for a 1.8 percent decline in a Reuters poll.

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"The chance of things [China's growth deceleration] getting out of control has increased. One reason is that the property sector is really a wildcard; it's not something that the government has complete control over. Secondly, we can see these new leaders, they want to do the right thing for the long run but they are struggling with how much short-term pain they are willing to tolerate, Yao said.

"I think over time, people will realize more and more that short-term pain is good for the long run, so we're getting more growth deceleration," she added.

However, David Riedel, president and founder of Riedel Research Group, said China's latest inflation figures indicate that policymakers have flexibility: "I think the big story for China is they have low CPI, so they do have some flexibility on their policy measures."

"A 1.8 percent CPI for a country like China is a spectacular situation for government policy. On the PPI side, I think there is some shift in demand and capacity in the world, not only in China, and they are having to adjust their manufacturing base to that. But having a very strong central government, a good base of foreign reserves and low CPI, gives them the flexibility to do what they need to do," he added.

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