China consumer inflation falls to 1.2% in May

GMT 05:14 2015 Tuesday ,09 June

Arab Today, arab today China consumer inflation falls to 1.2% in May

Inflation has been subdued in China
Beijing - AFP

Chinese inflation fell to 1.2 percent in May, data showed Tuesday, as Beijing struggles to boost consumer spending while analysts tipped further stimulus measures on top of the three interest rate cuts since late 2014.

The reading for the consumer price index (CPI), the main gauge of inflation in the world's second-biggest economy, was lower than April's 1.5 percent, National Bureau of Statistics said.

It also fell short of a median forecast of 1.3 percent in a survey of economists by Bloomberg News.

Moderate inflation can be a boon to consumption as it pushes consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.

Inflation has been subdued in China as economic growth slows and commodity prices have fallen, with some economists expressing worries of impending deflation.

China's economy expanded 7.4 percent last year, its slowest pace in 24 years and has shown few signs of a pick-up this year. GDP growth slowed to 7.0 percent in January-March, the worst quarterly result in six years.

The figures come a day after data showing imports fell for a seventh straight month in May, while exports also sank.

The inflation data will also give authorities a headache as they try to transform an investment-driven expansion model to one in which consumers take centre-stage.

The producer price index (PPI) -- a measures costs for goods at the factory gate and a leading indicator of the trend for CPI -- slipped 4.6 percent in May, the same as in April and the 39th consecutive fall, the Bureau said.

"Subdued CPI inflation reflects still weak domestic demand and leaves room for further policy easing," Nomura economists said in a note.

The central People's Bank of China has already cut interest rates three times since November and twice lowered the amount of cash banks must keep in reserve, along with other measures.

The Nomura economists two more interest rate cuts and two additional reductions in the bank reserve requirement ratio are likely over the  rest of this year, "with the next move most likely coming in July".

But Julian Evans-Pritchard, China economist at Capital Economics, said that despite the headline inflation numbers the price outlook going forward is more optimistic.

"We expect both measures of inflation to rebound over the coming quarters," he wrote in a reaction to the data.

He cited a likely pick-up in pork price inflation due to a recent sharp fall in pig numbers as well as technical factors resulting from the sharp decline in commodity prices in the second half of last year, which means the base for comparison will be lower.

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