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China consumer prices falls

Posted on: June 11, 2009


AFP – Thursday, June 11

BEIJING (AFP) – – China’s consumer prices fell for the fourth month in a row in May, data showed Wednesday as the economy continued to be hit by the global slump despite a massive stimulus plan aimed at boosting spending.

The consumer price index — the main indicator of inflation and deflation — fell 1.4 percent last month year on year, according to the National Bureau of Statistics, which added that the figure was down 0.3 percent from April.

The data comes as Beijing tries to increase domestic consumption while its export-dependent economy is battered by the global crisis, which has slashed demand in key overseas markets such as the United States and European Union.

But analysts said that despite the falling prices, China’s economy was showing other signs of recovery and deflationary pressures could ease in the coming months.

“The consumer price index is a little below our expectations,” said Gao Yi, a Shanghai-based analyst with Oriental Securities.

“But concerns over deflationary pressures have significantly eased recently because nonferrous metal and crude prices rallied strongly in international markets over the past months.”

Deflationary pressures would bottom out in July after the commodity price hikes trickled into China’s economy, he said.

A prolonged period of falling prices is a danger to the economy because it encourages people to defer purchases in the hope of getting them cheaper later on.

The producer price index, which monitors wholesale prices, fell in May by 7.2 percent year on year, the bureau said. The decline 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.

The government announced a package worth 590 billion dollars in November to kickstart the world’s third biggest economy which is suffering its worst slowdown in nearly two decades.

China’s economy grew 6.1 percent in the first quarter of the year, the lowest level in at least 10 years.

Before the global economic crisis struck, China had experienced double-digit growth from 2003 to 2007. And even in the first months of 2008, policy-makers’ main concern was keeping inflation in check.

However, Sun Mingchun, a Hong Kong-based economist with Nomura International, said: “I think deflation is coming to an end. We expect it to return to positive territory in September.”

Goldman Sachs economist Yu Song also said a rebound in economic activity in recent months indicated that deflationary pressures were on the wane.

“As we expect the rebound to continue in the coming quarters, we believe deflationary pressures will disappear in the latter half of the year,” Yu said in a research note.

The May inflation figure is only slightly better than the 1.5 percent decline recorded in April, which followed a 1.2 percent fall in March and a 1.6 percent drop in February.

The data shows the index was dragged down mainly by non-food items.

The prices of non-food items fell 1.7 percent in May compared with a year earlier, and food prices were down 0.6 percent.

While food was not the major factor in last month’s price formation in China, the value of pork, the most popular meat for the Chinese, declined by a steep 32 percent in May from a year earlier, the bureau said.

The index fell by 0.9 percent in the first five months of the year compared with the same period last year, according to the bureau.

The PPI for January-May fell 5.5 percent over the same period last year.

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