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Shanghai's CPI drops as spending held back

SHANGHAI'S consumer prices dropped for the first time in more than four years in February while consumers held back on spending amid the financial crisis.

The Consumer Price Index, a main gauge of inflation, dipped 0.2 percent last month from a year earlier, following a 1.7 percent growth in January and a 2.1 percent growth in December, according to the Shanghai Statistics Bureau.

The decline, the first time since January 2005 when the index dipped 0.1 percent, mirrored that of the national CPI which dropped 1.6 percent in February, the first time in six years.

Food prices, which make up a third of the consumer basket, rose 2.9 percent from a year earlier, the slowest pace in two years.

The sluggish real estate market dragged down home-related prices such as construction materials and rents. The prices dropped 5.1 percent in the period compared with a 4.8 percent decrease in January, contributing 0.7 percentage point to the CPI's fall, the bureau said.

The service sector saw prices fall due to the end of the Spring Festival holiday, the bureau said. Prices of entertainment, education, cultural services and general services fell 1.9 percent in the period.

Chinese consumers are getting concerned over household finances and job security amid a global recession.

Sixty percent of consumers have already curtailed their personal spending or plan to tighten their purse strings this year, a recent survey by DDMA Market Research & Consulting showed.

China is boosting the economy via fiscal measures and an easing of its monetary policy. A World Bank report said China's central bank has further scope for an expansionary monetary policy. As deflation is a potential risk, China should cut interest rates and remove price controls, the report said.


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