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Deflation concerns after PPI falls

DROPS in Shanghai's producer prices widened in April fueling concerns about deflation, the Shanghai Statistics Bureau said today.

The total of the city's foreign direct investment also tumbled, reflecting the still harsh global economic climate.

Shanghai's Producer Price Index, the main gauge of factory-gate inflation, fell 7.4 percent from a year earlier in April. It followed reductions of 6.8 percent in March and 6.5 percent in both February and January.

The costs of energy and raw materials lost 13.9 percent year on year last month, the second double-digit drop after posting a cut of 11.3 percent in March.

"The downward trend in PPI reflected the shrinkage in manufacturing demand. It could spill over to consumer prices in the coming months and now we should be alert for deflation," said Li Maoyu, an analyst at Changjiang Securities Co.

The city's Consumer Price Index, the yardstick of inflation, declined 1.4 percent in April. It has been the third straight month for the CPI to report a drop, after it fell 0.4 percent in March and 0.2 percent in February.

Meanwhile, the contract value of Shanghai's foreign direct investment fell 18.3 percent to US$1.2 billion in April. The number of contracts with foreign countries also dropped 17.1 percent to 238 projects.

"Foreign investors may keep holding their funds at home until they see a clear sign of the end of the global economic crisis. We should be prepared for a long-term shrinkage in foreign investment and exports," said Li.

Shanghai's exports in April fell 26.2 percent year on year to US$25.13 billion, compared with a decline of 16.4 percent in March.

But sustained development in the local market provided rays of hope for the city's economy, despite the dismal outlook of the growth in external demand.

In April, Shanghai's retail sales advanced 13.8 percent on the yearly basis after gaining 11.9 percent in March.

Fixed-asset investment also rose 4.1 percent year on year to 125.5 billion yuan (US$18.4 billion) in the first four months. In April alone, investment jumped 10.6 percent, powered by government spending, which marked a 14.2 percent expansion.


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