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Shanghai's PPI drops in May

SHANGHAI'S producer prices continued to drop last month but an analyst said deflation may come to an end in two or three months after the city's economy strengthens.

The city's Producer Price Index, the main gauge of factory-gate inflation, fell 7.8 percent last month from a year earlier, the Shanghai Statistics Bureau said yesterday.

The drop, the sixth in a row, followed the declines of 7.4 percent in April and 6.8 percent in March, and resulted in a decrease of 7 percent for the PPI in the first five months of the year.

The costs of fuel tumbled 28.3 percent last month to register the biggest drop among raw materials for production. It was followed by nonferrous metals, which lost 25 percent, and ferrous metals, which fell 18.6 percent.

"The negative PPI growth reflected the dwindling demand since the end of last year after the global financial crisis broke out," said Wang Zehua, an analyst at the bureau. "The lower figure in May was also partly due to the high base in the same period of last year. The pressure of deflation may subside in the coming two or three months when the city's economy shows more signs of recovery which in turn shores up demand."

Deflation is harmful to the economy because people stop spending in hopes of prices dropping further.

Shanghai's economic growth tapered off to 3.1 percent in the first quarter of this year after posting a 9.7-percent gain last year, its first single-digit growth in 17 years.

But recent key economic data have shown signs of improvement.

A decline in the city's industrial production narrowed to 2.1 percent on an annual basis last month from the 5.2-percent drop in April and the 7.1-percent tumble in March.

The retail sales and urban fixed-asset investment remained robust, growing by double digits last month.

The investment in the industrial sector through last month grew for the first time this year by 0.1 percent compared with a year ago.

Shanghai's Consumer Price Index, the main gauge of inflation, dropped 1.2 percent last month from a decline of 1.4 percent in April.


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