China inflation to ease further

Inflation figures for May are expected to ease further from April due to falling food prices and the base effect, analysts said, raising expectations for monetary loosening.

The consumer price index (CPI), a main gauge of inflation, will grow at a slower pace in May compared with the previous month, as vegetable prices have decreased markedly, said Zhang Liqun, a researcher at the State Council Development Research Center.

Zhang Lei, an analyst for Beijing-based Minsheng Securities, predicted that declining food prices will drive the annual CPI growth rate below 3.2 percent in May.

Farm produce prices declined for a fourth straight week from May 21 to 27 because of sufficient supplies of seasonal products, the Ministry of Commerce said Wednesday.

The wholesale prices of 18 types of vegetables monitored by the ministry dropped 1.4 percent week on week, the ministry said.

Food prices account for nearly one-third of the basket of goods used to calculate China’s CPI.

A high comparison base will also bring year-on-year CPI growth down, Zhang Liqun added.

China’s CPI increased 3.4 percent year on year in April, easing slightly from the 3.6 percent registered in March.

The CPI hit 5.4 percent in 2011, well beyond the government’s full-year target of 4 percent, and only started to show signs of retreating this year.

Inflation may ease to around 3.1 percent in May and fall below 3 percent in June, according to a report released by the Bank of Communications (BoCom) on Wednesday.

The central bank is likely to further unleash liquidity and even reduce interest rates if inflation softens faster than expected, the Shanghai-based Haitong Securities said in a report.

Abating inflationary pressure will also speed up the reform of pricing mechanisms for resource products, including refined oil, water, electricity and natural gas, Haitong Securities noted.

China keeps the prices of these products under strict control for fear of fueling inflation, but has promised to make pricing more market-oriented.

The pricing reforms, together with the acceleration of infrastructure construction by the government to counter China’s economic slowdown, may contribute to price rises this year, but the overall trend of inflation easing won’t be changed, the BoCom report said.

The government will be able to keep the annual CPI growth rate at or below 4 percent in 2012, according to the report.

To rein in soaring inflation last year, China’s central bank raised interest rates three times and hiked its banks’ reserve requirement ratio six times.

It has cut the reserve requirement ratio three times since December 2011 to cushion an economic slowdown caused by weak external demand and a flagging property market.

In the first quarter of 2012, China’s economy expanded 8.1 percent year on year, nearly reaching a three-year low. The government has set the full-year growth target at 7.5 percent.


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