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Fourth monthly drop for city CPI

SHANGHAI'S Consumer Price Index fell 1.2 percent in May from a year earlier, the Shanghai Statistics Bureau said today.

Despite it being the fourth monthly decline in a row, analysts expect the deflationary pressure in the city may subside in the second half of this year - in line with the national trend.

The city's CPI, the main gauge of inflation which measures the cost of living, dropped 1.2 percent last month on an annual basis. It followed decreases of 1.4 percent in April, 0.4 percent in March and 0.2 percent in February.

Apparel prices dropped 1.2 percent last month from a year earlier while the costs of transport and communications fell 2.9 percent. The price of health care also declined 1.2 percent while rents fell 5.6 percent.

Food prices, which were one of the two categories posting growth, increased 0.9 percent in May while the cost of household appliances added 3.6 percent.

"The contraction of the CPI indicates the city still faces economic difficulties ahead," said Liu Hui, an analyst with the bureau. "However, it seems the prices did not deter people's willingness to spend and the pressure of deflation may ease in the coming months in accordance with the national trend because of the soaring prices in the global market."

Deflation is considered harmful to the economy because people defer spending, hoping prices will be cheaper.

Shanghai's retail sales in May jumped 12.4 percent from a year earlier, keeping a fast growing momentum although a bit slower than the expansion of 13.8 percent in April.

On the national level, China's CPI sank 1.4 percent from the same period of last year in May while the Producer Price Index, the factory-gate measure of inflation, fell to a record low of 7.2 percent.

However, some economists said the country would not suffer from deflation for a long time as the prices of commodities in the global market have had significant rises recently and may spill over onto the domestic market.


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