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China's inflation growth moderates in May

By Wang Yanlin | June 9, 2015, Tuesday | Online Edition

CHINA'S inflation growth moderated in May due to easing food prices, indicating still weak domestic demand and more deflationary pressure, according to the National Bureau of Statistics today.

The Consumer Price Index, the main gauge of inflation, grew 1.2 percent from a year earlier last month, weaker than the increase of 1.5 percent in April and 1.4 percent in March.

Food prices, which account for nearly one third in the CPI basket, rose 1.6 percent last month, much slower than the pace of 2.7 percent in April and becoming the biggest contributor to a weakening inflation growth.

Prices in the non-food sector edged up 1 percent last month, compared with April's rise of 0.9 percent with people paying more for clothes, housing and cigarettes.

Yu Qiumei, a researcher at the NBS, said seasonal factor was the main reason for the slowdown in food prices.

"The supply of food is stable but costs of vegetable, fruit and eggs declined in the past month due to a higher base last year," Yu said. "At the same time, price of cigarettes increased because of more taxes on tobacco products, while oil price recovered a bit from the sharp drops in the previous months."

The Producer Price Index, the factory-gate measurement of inflation and a harbinger of future prices at the consumer end, fell 4.6 percent in May. It was the same as that in both April and March, landing the PPI reading in the negative territory for the 38th consecutive month.

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said the set of inflation data suggested that domestic demand remained lukewarm.

"As such, we revised down our CPI inflation forecast from 1.8 percent to 1.5 percent for the whole year of 2015," Zhou said, adding further monetary policy easing is highly needed.

"While market interest rates have declined to the lowest level in six years, the costs of funds faced by Chinese companies remained elevated," Zhou said. "We believe that the central bank still has room to cut either reserve requirement ratio or interest rates further."

China has reduced both interest rates and reserve requirement ratio, or the amount of money that commercial banks must set aside as reserves, in the past two months to bolster the economy. China's gross domestic product growth eased to 7 percent in the first quarter, which was the slowest quarterly expansion in six years.

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