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China's inflation eases to 17-month low

China's inflation eases to 17-month low Source:
Date: 09-06-2012
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China's inflation unexpectedly eased to a 17-month low due to falling food prices and base effect, enhancing evidence that the government's policy shift to shore up growth.

The consumer price index (CPI), a main gauge of inflation, slowed to 3.0 percent in May from a year ago, the National Bureau of Statistics (NBS) said Saturday. It weakened from April's 3.4 percent and 3.6 percent in March.

Compared with the previous monthly, it edged down 0.3 percent, the NBS said.

The CPI climbed 3.5 percent in the first five months compared with the same period of last year year.

Food prices, which account for nearly one-third of the weighting in the calculation of China's CPI, increased 6.4 percent last month from one year earlier, down from 7 percent in April.

On a monthly basis, food prices dropped 0.9 percent from April, the NBS said.

Farm produce prices fell for five straight weeks between May 28 and June 3. Although the prices of garlic and egg surged due to dwindling output and bad weather, vegetable and pork prices have fallen remarkably, the Ministry of Commerce said Wednesday.

Meanwhile, China's Producer Price Index (PPI), a main gauge of inflation at the wholesale level, fell 1.4 percent in May from a year earlier in response to falling global commodity prices.

It fell deeper than April's 0.7 percent, and marked another month of decline yea on year after China's PPI saw a drop in March for the first time since December 2009, NBS data showed.

Liu Yuanchun, vice president of the School of Economics at Renmin University of China, said May's CPI reading beat market forecast of 3.1 percent to 3.2 percent.

He attributed the reason for the lower-than-expected data to waning effects of imported inflation and lackluster domestic demand.

He expected the economy to rebound after hitting the bottom of the year in the second quarter. Domestic demand will then pick up which could stop consumer prices falling. But dropping global commodity prices will continue to weigh on the domestic prices.

Slowing CPI is much expected as the central bank Thursday announced the first interest rates cut since December 2008 to tackle the slower-than-expected the world's second largest economy.

After the cut, the one-year deposit interest rate will fall to 3.25 percent while the loan interest rate will be lowered to 6.31 percent.

The National Development and Reform Commission (NDRC), the economic planning agency, Friday announced the second price cut of gasoline and diesel in a month in response to lower crude prices on the global market.

The adjustments will lower the benchmark retail price of gasoline by 0.39 yuan per liter and diesel by 0.44 yuan per liter.

Inflation may drop below 2 percent if fuel prices continue to fall, said Xiang Yue, an analyst with Great Wall Securities.

Liu Yuanchun estimated the annual CPI would stand at around 3.2 percent, and the monthly reading could fall below 3.0 percent.
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