Consumer prices hit a 4-month high
Print Edition
CHINA’S consumer prices hit a four-month high in May, but analysts say the inflationary outlook remains mild, leaving room for more policy easing.
The Consumer Price Index, the main gauge of inflation, expanded 2.5 percent from a year earlier last month, up from April’s 1.8 percent increase, the National Bureau of Statistics said yesterday.
A low comparative base and higher food costs were cited as the main reasons for the rise. The bureau said the “carry-over effect” resulting from a low comparison basis last year contributed 1.6 percentage points, while food prices jumped 4.1 percent, bolstered by a 20 percent surge in the price of fresh fruit and vegetables year on year.
“Despite the uptick in May’s headline CPI, we expect the inflation trend going ahead will be largely stable,” said Zhu Haibin, chief economist for China at JPMorgan. “It is almost certain CPI inflation will stay below the announced target ... and policy-makers can focus on growth stabilization and reform measures in the near term.”
In the first five months, China’s consumer prices increased 2.3 percent, below the government target of controlling it at under 3.5 percent for this year.
Meanwhile, the Producer Price Index, the factory-gate gauge of inflation, contracted 1.4 percent in May, narrowing from the decrease of 2 percent a month earlier and remaining negative for the 27th consecutive month.
“It indicated that industrial demand stayed weak in general although we saw some improvements in a few sectors recently,” said Liu Ligang, chief economist for China at Australia & New Zealand Banking Group Ltd.
The official Purchasing Managers’ Index, which measures operational conditions in manufacturing, shot to a five-month high of 50.8 in May from 50.4 in April, reflecting faster growth among industrial companies.
“In general, China’s inflationary outlook remains mild amid economic slowdown, and we thus revise our CPI inflation forecast for 2014 to 2.8 percent from 3.2 percent previously,” Liu said.
China’s economy showed signs of weakness in April with a set of activity data, including industrial production, fixed-asset investment and retail sales, all plunging to their lowest in years. In May, China’s imports fell unexpectedly by 1.6 percent from the gain of 0.8 percent a month earlier, mirroring still weak domestic demand.
On Monday, the central bank said it would further cut the reserve requirement ratio for targeted banks, the second such move in two months in a bid to support small companies and agriculture.
“While the People’s Bank of China did not deliver a broad-based cut on the amount of money that banks must set aside, we believe this is a compromise as the State Council and Premier Li Keqiang are reportedly increasingly concerned about downside risks facing the economy,” Liu said.
“In our view, whether to cut reserve requirements for the whole banking system should be a data dependent process. It may take place in the third quarter if the real activity data deteriorate further.”
China unveiled mini stimulus measures in the past two months to bolster growth while keeping reforms on track, including tax breaks and accelerating spending on railway construction.
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