China May inflation hits 4-month high but is within govt's comfort zone

China's consumer inflation edged up to a four-month high of 2.5% in May while factory price deflation eased, reinforcing signs of stabilisation in the economy.

Still, inflation remained well within the governments' comfort zone, giving Beijing ample room to step up targeted policy support if necessary to ward off any threat of a sharp economic growth slowdown.

China's consumer price index (CPI) rose 2.5% in May from a year earlier, quickening from a 1.8% rise in April. The number slightly exceeded market expectations of 2.4%, data from the National Bureau of Statistics showed on Tuesday.

Food prices rose 4.1% in May from a year earlier, quickening from April's 2.3% rise, the data showed.

Month-on-month, consumer prices rose 0.1% versus a forecast for a 0.1% fall.

"The recovery of pork prices, together with last year's low base, helped the faster price rises," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

"The comfortable inflation figure will provide sufficient room for the central bank to loosen its monetary policy in coming months to shore up the economy."

The government has set a inflation target of around 3.5% this year.

China's central bank recently cut the level of deposits for banks with sizeable lending to the farming sector and small firms - the latest step to spur growth.

The government has acted since April to steady growth through some focused measures, characterising it as policy fine-tuning.

Meanwhile, official manufacturing and service sector surveys showed improvement in May, adding to hopes that the economic soft patch was bottoming out.



FACTORY PRICE DEFLATION EASES


The producer price index (PPI) fell 1.4% in May from a year earlier - the 27th consecutive month of decline - versus a 2% fall in April and market expectations of a 1.5% drop.

"The PPI figure is in line with market consensus and provides more evidence of stabilisation in the economy," said You Hongye, an analyst at Essence Securities in Beijing.

Yu Qiumei, a senior statistician at the National Bureau of Statistics, said easing factory price deflation in May indicated rising demand for industrial products.

Month-on-month, producer prices still fell 0.1%.

Chinese manufacturers have struggled to cope with profit-eating price declines, adding to pressure on the government to take steps to reduce financing burdens on companies.

China's exports gained steam in May thanks to firmer global demand, data showed on Sunday, but an unexpected fall in imports signalled weaker domestic demand that could continue to weigh on the world's second-largest economy.

Chinese leaders have ruled out any large stimulus as the country is still nursing the hangover from the 4 trillion yuan ($640 billion) stimulus implemented during the global crisis in 2008-09, which resulted in piles of local government debt.

The statistical bureau is due to release data on industrial output, retail sales and fixed-asset investment on Friday. New loan and money supply data will be issued between June 10-15.

A Reuters poll found analysts expect annual economic growth to slow to 7.3% in the second quarter from 7.4% in the previous quarter, with full-year growth of 7.3% in 2014, the weakest in 24 years and below the government target of 7.5%.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • India’s festivals teach us to share our wealth and joy

    India is an aporia in its own true sense.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Tushar Gandhi

Sustainable model for rural sanitation

Prime minister Narendra Modi has promised to build a toilet ...

Zehra Naqvi

How smells evoke strong memories

Remember that time when a passing fragrance transported you to ...

Dharmendra Khandal

Indian zoos need a fresh approach

Recently, when a man jumped in a tiger trench of ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture