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China's CPI falls 1.4% in May, indicating continuing recovery
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China's consumer price index (CPI), the main gauge of inflation, in May fell 1.4 percent year on year, the National Bureau of Statistics (NBS) announced Wednesday.

This marks the fourth consecutive monthly decline since the index dropped 1.6 percent in February, the first fall since October 2002. However, the decline was 0.1 percentage points lower than the April level.

The index recorded a month-on-month decrease of 0.3 percent, according to NBS, and consumer prices for the first five months in 2009 fell 0.9 percent from the same period last year.

The producer price index (PPI), which measures inflation at the wholesale level, fell for the third straight month, dropping 7.2 percent year-on-year in May, the NBS said.

The data was in line with market expectations, said Zhuang Jian, a senior economist with the Asian Development Bank.

The slower year-on-year decline in CPI last month had shown a more solid and stable recovery in China's economy, and deflation pressures are fading with ample liquidity and a rebounding economy, he said.

CPI decline slows, PPI drops further

The CPI decline in May was slightly slowed from April's 1.5 percent, while the PPI had dropped further last month, compared with a 6.6-percent drop in April and a 4.6-percent fall in the first quarter from the same period last year.

Tang Jianwei, an economist at the Bank of Communications, attributed the declining CPI to falling food prices from the price hike early last year.

Food prices, which comprise a third of the CPI, dropped 0.6 percent, as pork prices continued to fall by 32 percent on oversupply and concerns that the A/H1N1 influenza virus was connected to pigs.

As for PPI, the fast growth of prices in the first eight months of 2008 had also been a cause for the further decline, according to a statement on the NBS website.

For instance, the month-on-month PPI growth stood at 0.8 percent in May last year, compared with just 0.1 percent last month. That contributed to a larger fall in the year-on-year figure.

The decline had also shown that global economic downturn continued to weigh on the country's economy, the statement said.

Despite price rebounds in major industrial products during the past two months, prices are still lower than the same period last year, it said.

Zhuang said the market was still experiencing adjustments in inventory, and the trend in industrial product prices was difficult to discern.

Economic rebound continues

Concerns over possible deflation have been shadowing China as consumer prices fell for four straight months. However, the slightly narrowed decline signaled signs of a sustained economic recovery prompting economists to be optimistic about future CPI trends.

"With money supply and domestic demand growing, the downward trend in CPI will not last long," Zhuang said.

Tang was even more optimistic, as he predicted China would begin seeing a positive CPI starting from the second half of the year as the economy continued to rebound.

The country pumped 5.17 trillion yuan (about 757 billion U.S. dollars) of new loans into the economy in the first four months this year to stimulate growth.

There have been media reports that new yuan-denominated loans in May might reach 600 billion yuan, far more than the previous market expectation of 500 billion yuan.

China Business News, one of the country's major financial papers, reported Tuesday that China's new bank loans might increase to 664.8 billion yuan, citing unidentified sources.

More positive signs

The NBS had noted a rising trend in grain prices, which rose by 0.8 percent in May, the fifth straight rise since January.

"It needs further observation to see whether the grain price hike would have an impact on the CPI trend," said the NBS.

Positive signs also came from the property market and transportation services in major cities.

Land sales in Beijing last month hit 1.68 million square meters, exceeding the total amount sold from January to April, according to data from the Beijing Land Consolidation and Reserve Center.

The property prices decline in 70 of China's large and medium-sized cities shrank to 0.6 percent year-on-year from 1.1 percent in April, the NBS said Wednesday.

Cargo throughput at main ports across China was estimated to reach 546 million tonnes in May, up 5 percent from a year earlier, latest calculations from the Ministry of Transport (MOT) showed.

The market has reacted positively to the data release and emerging recovery signs. China's mainland A-share market edged up 1.02 percent Wednesday.

(Xinhua News Agency June 10, 2009)

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