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Slower pace of drop for consumer prices

CHINA'S consumer prices last month fell for the second consecutive month at a slower pace when compared with February, easing concerns about deflation and an immediate interest rate cut.

Economists predicted consumer prices to continue its decline in the second quarter as the drop in producer prices widened last month but said consumers should not fret too much about deflation as the Chinese economy is set to recover.

The Consumer Price Index, a main gauge of inflation, fell 1.2 percent last month, against a decline of 1.6 percent in February which was the first monthly drop since December 2002, the National Bureau of Statistics said yesterday.

"The biggest risk of deflation happened in the fourth quarter last year but the central government's stimulus policies have helped warm up the economy," said Dong Xian'an, an analyst at Southwest Securities Co. He said prospects of launching more stimulus policies and slashing interest rates are slim in the short term.

In the first quarter, the CPI shed 0.6 percent, with urban areas seeing a 0.9-percent drop while it was unchanged in rural areas, the bureau said. Food prices, which make up a third of the consumer basket, inched up 0.5 percent in the first quarter and housing prices dropped 2.9 percent.

Prices of cigarettes, wine, home appliances and health-care products rose in the quarter, the bureau said.

"Securing economic growth and boosting domestic demand can help fight against deflation," said Yao Jingyuan, chief economist of the bureau. "We expect the CPI to rebound in the fourth quarter of this year."

Deflation, a persistent drop in prices, can hurt consumption as consumers wait for prices to fall further which in turn reduce economic activities, squeeze corporate margins and prompt wage cuts.

The Producer Price Index, the chief gauge of factory-gate inflation, fell 4.6 percent in the first quarter, the bureau said.

Bureau spokesman Li Xiaochao told reporters after a news conference yesterday that the PPI fell 6 percent last month, worse than the 4.5-percent annual drop in February, led by declining prices of raw materials and fuel.

The global economic downturn has sharply reduced prices of commodities like crude oil and ore.


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