Room for policy easing as China's consumer prices rise 2.5pc

Comfortable inflation figure and slowing decline in factory prices reinforce signs of stabilisation

PUBLISHED : Tuesday, 10 June, 2014, 10:17am
UPDATED : Wednesday, 11 June, 2014, 4:40am

The mainland's consumer inflation edged up to a four-month high of 2.5 per cent last month while factory price deflation eased, reinforcing signs of stabilisation in the economy.

Inflation still remained well within the central government's comfort zone, giving Beijing ample room to step up targeted policy support if necessary to ward off any threat of a sharp slowdown in economic growth.

The National Bureau of Statistics said yesterday that the consumer price index rose 2.5 per cent in May, quickening from 1.8 per cent in April and slightly exceeding market expectations of a 2.4 per cent increase.

Food prices grew 4.1 per cent year on year, faster than April's 2.3 per cent increase, the data showed.

"The recovery of pork prices, together with last year's low base, helped the faster price rises," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai. "The comfortable inflation figure will provide sufficient room for the central bank to loosen its monetary policy in coming months to shore up the economy."

The central government has set an inflation target of about 3.5 per cent this year.

The producer price index fell 1.4 per cent year on year last month, the 27th consecutive month of decline, after a 2 per cent drop in April.

"The [producer price index] figure is in line with market consensus [of a 1.5 per cent decline] and provides more evidence of stabilisation in the economy," said You Hongye, an analyst at Essence Securities in Beijing.

Yu Qiumei, a senior statistician at the bureau, said easing deflation in factory prices last month indicated rising demand for industrial products.

Mainland manufacturers have struggled to cope with profit-eating price declines, adding to pressure on the central government to take steps to reduce financing burdens on companies.

Exports gained steam in May, thanks to firmer global demand, data showed on Sunday, but an unexpected decline in imports signalled weaker domestic demand that could continue to weigh on the world's second-largest economy.

The statistics bureau is due to release data on industrial output, retail sales and fixed-asset investment on Friday, with new loan and money supply figures to be issued by Sunday.