China's producer prices rose at the slowest pace in more than two years last month as excess capacity led to plunging prices for many industrial products and raw materials. The producer price index (PPI) rose 1.9 per cent year on year last month, compared with the 2.5 per cent rise in March and 3 per cent increase in the first two months of the year, the National Bureau of Statistics said in a statement posted on its website yesterday. The bureau earlier forecast the PPI, a leading indicator of inflation, would rise by about 2.5 per cent this year compared with a rise of 4.9 per cent last year. The bureau also predicted the consumer price index, the key indicator of inflation, would rise 1 per cent this year, far below the projected target of 3 per cent. Annual producer price inflation has been falling since peaking at 8.4 per cent in October 2004. Last month's figure was the lowest in 29 months. Analysts attributed the easing inflation to overcapacity in some sectors despite sizzling economic growth in the first quarter. The investment-driven 10.2 per cent year-on-year growth in gross domestic product in the first three months of the year has already seen policymakers introduce a new round of austerity measures, tightening credit and placing curbs on investment. 'The oversupply was the reason behind the fall in the prices of production materials,' said Jiming Ha, chief economist with China International Capital Corporation. Factory gate inflation has been falling since autumn 2004 because overcapacity in many industries has prevented manufacturers from passing on high raw material costs. But economists warned that inflationary pressure might build up slightly in the next few months following the rebound in capital spending and the government's plan to raise prices for energy and public facilities such as water and taxi fees.
