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China May inflation at 2-yr low, more easing seen
June 9, 2012 / 2:35 AM / 6 years ago

China May inflation at 2-yr low, more easing seen

BEIJING (Reuters) - China’s annual consumer inflation cooled faster than forecast to two-year lows of 3 percent in May, helping explain the central bank’s move to cut interest rates this week for the first time since the depths of the 2008/09 financial crisis.

A vegetable seller reaches to collect money from a customer in her stall at a market in central Beijing June 1, 2012. REUTERS/David Gray

In a sign that price pressures could slow further, the National Bureau of Statistics said on Saturday producer prices also fell more than forecast by 1.4 percent from a year ago, compared with estimates for a 1.1 percent decline.

That marked the third straight month of producer price deflation.

“Price pressures eased in May and the easing could accelerate in coming months. This supports the central bank’s move to cut interest rates,” said Zhang Yongjun, an economist at China Center for International Economic Exchange, a top government think-tank.

May’s consumer inflation reading is the lowest since June 2010.

Economists polled by Reuters had forecast inflation to cool to 3.2 percent in May, from April’s 3.4 percent. From a month ago, consumer prices dipped 0.3 percent in May, while producer prices edged down 0.4 percent.

“June inflation is very likely to dip below 3 percent and probably cool further towards the year-end,” Zhang said. “We cannot rule out the possibility of more rate cuts, and the reserve requirement ratio should be cut more frequently.”

The price data comes just two days after China’s central bank cut lending and saving rates by 25 basis points to put a floor beneath slackening economic growth.

That price pressure is cooling is in stark contrast to the situation a year ago, when consumer inflation raced to a three-year peak of 6.5 percent in July, prompting authorities to stridently tighten monetary policy.

Food inflation, the top concern for shoppers and policymakers, moderated to 6.4 percent in May from April’s 7 percent, as falling fruit and pork prices offset a jump in vegetable prices.

A vender naps as she waits for customers at a market in Hefei, Anhui province May 11, 2012. REUTERS/Stringer/Files

Non-food price inflation slowed to 1.4 percent in May, from 1.7 percent in April.


The surprise move stirred market fears that the central bank had acted to pre-empt a poor showing from China’s monthly data deluge due later at 0530 GMT. If the data indeed disappoints, talk that authorities may do more to lift growth would likely build.

Industrial output is forecast to rise 9.9 percent in May , while retail sales are seen up 14.3 percent and fixed-asset investment is seen languishing at a decade low of 20 percent.

A Reuters poll of analysts in May showed China’s economy is forecast to grow just 8.2 percent this year, its slowest in 13 years.

Analysts also think China will deliver its weakest quarter of growth in three years in the second quarter at 7.9 percent, its sixth straight quarter of slowing growth.

Even before Thursday’s rate cut, China’s central bank had lowered banks’ reserve requirements twice this year by a total of 100 basis points to loosen credit conditions.

But commercial banks are still required to lock a fifth of their deposits with the central bank, a level some economists argue is too high, especially as Europe edges closer to a financial precipice.

With China drawing closer to its once-a-decade leadership change, the government is desperate for the economy to grow steadily to provide enough jobs.

Premier Wen Jiabao has vowed to keep the economy growing at a “relatively fast” pace, and the government has accordingly fast-tracked investment in infrastructure and industrial projects.

Still, analysts predict China will not unveil another massive 4 trillion yuan stimulus package, as it did during the 2008/09 crisis and which left a frothy house market and a mountain of debt in its wake.

Editing by Don Durfee and Robert Birsel

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