China’s inflation slows again in May
Print Edition
CHINA’S main inflation gauge fell in May due to lower food prices, suggesting domestic demand remains weak and adding to deflationary pressures, the National Bureau of Statistics said yesterday.
The consumer price index increased 1.2 percent in the month from a year earlier, slowing from rises of 1.5 percent in April and 1.4 percent in March.
Food prices, which account for nearly a third of the CPI shopping basket, rose just 1.6 percent in May, compared with a 2.7 percent gain in April, and were the main cause of the slower inflation.
Prices in the non-food sector edged up 1 percent in the month, after a 0.9 percent rise in April.
Yu Qiumei, a researcher at the bureau, said seasonal factors were the main reason for the slowdown in food prices.
“The supply of food is stable but the cost of fruit, veg and eggs fell in May due to last year’s high comparative base,” he said.
“At the same time, the price of cigarettes rose because of higher taxes, while oil prices recovered after earlier declines,” he said.
Meanwhile, the producer price index, which is a measure of inflation at the factory gate and points to future consumer prices, fell 4.6 percent in May. The figure was unchanged from April and March and marked the 38th consecutive monthly drop.
Zhou Hao, an economist at Australia & New Zealand Banking Group, said last month’s data suggested that domestic demand remains only lukewarm.
“As such, we’ve revised our CPI inflation forecast for this year to 1.5 percent from 1.8 percent,” he said, adding that further monetary policy easing is needed.
In the first five months, China’s consumer prices gained 1.3 percent — far below the target of controlling it under 3 percent — while producer prices dropped 4.6 percent.
“While market interest rates have fallen to their lowest level in six years, the funding costs faced by Chinese companies remain elevated,” Zhou said.
“We believe the central bank still has room for further cuts to either the reserve requirement ratio or interest rates,” he said.
The government has introduced several stimulus measures in recent months in a bid to bolster a softening economy, including cutting both interest rates and the reserve requirement ratio.
In the first three months of this year, China’s gross domestic product rose 7 percent from the same period of 2014, its slowest quarterly gain in six years.
Zhu Haibin, chief economist for China at JP Morgan, said economic data scheduled to be released tomorrow, including May’s industrial production, retail sales and fixed-asset investment, will provide a valuable gauge of growth momentum and be a pointer to the government’s next monetary policy moves.
“In our view, this round of rate cuts is coming to an end,” Zhu said.
“We expect the central bank to shift the focus of its monetary policy toward quantitative measures, especially to support sectors like technology and innovation,” he said.
The Chinese government has set an economic growth target of about 7 percent for this year and has repeatedly proclaimed the “new normal” of slower but higher-quality growth under its deepening reforms.
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