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Patience urged as prices drop again in April

CHINA'S consumer and production prices declined again last month, fanning worries that deflation may be digging in.

But some economists also pointed out that more time may be needed before the full effects of government stimulus measures take hold and begin boosting the economy.

The Consumer Price Index, the main gauge of inflation, fell 1.5 percent in April on a yearly basis, the third consecutive monthly decline, following a 1.2 decrease in March and a 1.6 percent drop in February.

Meanwhile, the April Producer Price Index, the chief measure of factory-gate inflation, dived 6.6 percent year on year, registering the biggest drop since 1999, according to Bloomberg News, and following a 6 percent slide in March.

The falloffs in both figures were in line with market expectations, given that the world economy is still gripped by financial crisis. But some officials and analysts are in a relatively optimistic mood about the situation in China, the world's third largest economy.

"Deflation continued in April across both upstream and downstream routes. Consumer prices may fall further in the coming months as the cost drop in production will spill over onto consumers," said Wang Qing, a Morgan Stanley economist.

"However, while deflation has created room for further monetary easing, more evidence of green shoots in economic activity, rapid loan creation in the first quarter and a recovery in the stock and property markets have reduced the urgency of further immediate policy moves."

Li Maoyu, an analyst at Changjiang Securities Co, said that although the April CPI and PPI point to possible further deflation, the results may be partially due to last year's high base.

China's consumer prices and producer prices were running at record high levels in April last year, and many economists were worried about an overheating economy.

The global financial crisis emerged in the second half of last year and only then began to take its toll on China's development.

Economists generally worry that deflation may hurt consumer spending as people wait for prices to fall further, which in turn squeezes corporate profits and prompts wage cuts.

Su Ning, vice governor of the People's Bank of China, said yesterday at a forum in Shanghai that China's economic performance was better than expected but the country should be wary of the risk of deflation.

"China's massive stimulus package has begun to take effect, and the nation has delivered better-than-expected economic performance so far," Su said.

"The central bank will continue to carry out a relatively loose monetary policy. We have to deal properly with the pressure brought by deflation - in order to secure development and make it sustainable."


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