China's May CPI falls 1.4 per cent, PPI declines 7.2 per cent

China's consumer price index (CPI), the main gauge of inflation, fell 1.4 per cent YoY in May, the Chinese National Bureau of Statistics (NBS), said.

CPI dropped for the fourth consecutive month while the producer price index (PPI), a major measure of inflation at the wholesale level, fell 7.02 per cent in May year on year, for the fifth consecutive month. (See: China's April CPI down 1.5 per cent, PPI down 6.6 per cent, may avoid deflation)

The government has projected the full-year inflation target of 4 per cent for 2009.

CPI numbers were down mainly due to a sharp drop in the cost of fresh vegetables by 22.2 per cent and meat prices falling 15.5 per cent.

The prices in the non-food sector slid 1.7 per cent and the core CPI, which excludes food and energy prices, dropped 1.3 per cent year on year, according to NBS statistics.

The index recorded a month-on-month decrease of 0.3 per cent, according to NBS.

Food prices, which comprise one-third of the CPI were down 0.6 per cent from a year ago. This was mainly due to sharp drop in pork prices causing demand to tumbled by 32 per cent, on fears that global flu was related to pigs.

The results are in line with market expectations and forecast from senior analyst as this year's prices are being compared with a period of high inflation in 2008.

Most analyst with these figures dispel the fear of deflation as the rate of price drop has slowed down from that of April's 1.5 per cent decline.

Producer prices index
The producer prices plummeted by 7.2 per cent in May from a year ago, the sixth consecutive monthly decline, was caused  by a 50.6 per cent fall in the cost of edible oil and iron ore and other raw materials falling in double-digit, the statistics bureau reported.

Prices of production materials fell 8.8 per cent and consumption goods were down 1.9 per cent year on year, said the NBS.

The decline compared with a 6.6-per cent drop in April, 4.6-per cent fall in the 1Q of  last year, while a 5 .5 per cent fall in the January-May period of  last year.

The NBS ascribed the larger-than-expected PPI fall to three factors, according to the statement in their website.

 First, the global economic crisis continued to pull down the country's economy. Despite price rebounds in major industrial items in the past two months, the prices are still lower than the same period of last year.

Second, in the first eight months of 2008, the prices maintained a fast growth. For example, the month-on-month PPI growth was 0.8 per cent in May last year, compared with just 0.1 per cent last month, which accounted for a larger fall in the year-on-year figure.

Third, despite the fact that the PPI has risen month on month for two consecutive months since rising 0.2 per cent in April from March, a rebound in the year-on-year figure cannot be seen in the near future as domestic supply will remain excessive in the short term.

According to analysts, warning signs of deflation, anticipated in January are subsiding as global commodity prices have started to rise and China's economy is showing signs of recovery.