China’s CPI, the main gauge of inflation, fell 1.4 percent year on year in May, the National Bureau of Statistics (NBS) announced. It is also the fourth consecutive monthly decline since the index dropped 1.6 percent in February. However, the decline was 0.1 percentage points lower than the April level.

Tang Jianwei, an economist at the Bank of Communications, attributed the declining CPI to falling food prices from the price hike early last year.

Food prices, which comprise a third of the CPI, dropped 0.6 percent. Pork prices continued to fall by 32 percent on oversupply and concerns that the A/H1N1 influenza virus that was initially called swine flu.

On the other hand, the producer price index (PPI), which measures inflation at the wholesale level, fell for the third straight month, dropping 7.2 percent year-on-year in May, the NBS said.

As for PPI, the fast growth of prices in the first eight months of 2008 had also been a cause for the further decline, according to a statement on the NBS website. If compared with the PPI in the previous year, the decline rate comes out higher than in a month-to-month comparison. .

Despite price rebounds in major industrial products during the past two months, prices are still lower than the same period last year, the NBS report said.

Source : Konaxis

The CPI dropped for the third straight month since February when it dropped 1.6 percent while the PPI, a major measure of inflation the wholesale level dropped for the fourth month.

Food prices, which is one-third of the CPI, dropped 1.3 percent, pulled down by a 28.6-percent decline in pork prices following the decline in demand mainly due to the global flu outbreak thought to have originated from pigs. Non-food prices also fell, by 1.5 percent.

The consumer price index was down 0.2 percent from a month earlier, and the figure for January-April fell 0.8 percent from the same period last year. The PPI dropped 6.0 percent in March and 4.6-percent fall in the first quarter from the same period last year.

Lian Ping, chief economist with the Bank of Communications, said the weakening reflected the high base of comparison, since the CPI soared by 8.5 percent last April. The consecutive declines did not presage deflation, and the figure was expected to rise starting at mid-year.

Li Huiyong, analyst with the Shenyin & Wanguo Securities said falling iron and steel prices pushed the PPI down.

However, Lian said the figure was expected to rise from May forward, at least in month-on-month terms, as global commodity prices had begun rising again amid signs of economic recovery.

Last month, domestic prices of copper, aluminum and zinc rose by 10 percent to 20 percent on average. Oil product prices also edged up.

The consecutive falls in the CPI and PPI aroused concerns about deflation in the world’s third-largest economy. But analysts said that given the inflationary nature of the government stimulus package and the massive expansion of bank credit in the first quarter, deflation was unlikely.

The country pumped 4.58 trillion yuan ($670 billion) of new loans into the economy in the first quarter to stimulate growth.

Lending in the early months of 2009 has already neared the 5 trillion yuan of new loans targeted for the whole year. In March alone, new loans increased by a record 1.89 trillion yuan.

Actually, the declines in both the PPI and the CPI have been expected by the People’s Bank of China (PBOC, the central bank) and the State Information Center based on their reports before the NBS announcement.

One hundred economists polled by the China Economic Monitoring & Analysis Center under the NBS at the end of March expected the figure for the whole year would range between 0 to 0.2 percent.

Source : Konaxis