Deflationary pressures in China eased further last month, relieving some pressure on cash-strapped companies, but consumer inflation was cooler than expected, suggesting the central bank is to keep policy supportive in coming months, but is to be in no hurry to cut interest rates further.
Consumer inflation rose less than forecast as pressure from high food prices eased, while producer prices recovered more than forecast, the Chinese National Bureau of Statistics said yesterday.
The consumer price index (CPI) rose 2 percent year-on-year last month, compared with a 2.3 percent increase in April. Food prices were up 5.9 percent year-on-year last month after rising 7.4 percent in April.
Prices of China’s staple meat pork rose 33.6 percent last month and hit record levels last week.
Non-food prices rose 1.1 percent, flat from April and continuing to show a lack of price pressures that would indicate activity in the broader economy was gaining steam.
“On a month-on-month basis, China’s CPI has been dropping for three consecutive months, clearly pointing to an easing bias in monetary policy for the time being,” said Zhou Hao (周浩), senior Asia emerging market economist at Commerzbank AG in Singapore.
Improvements in producer prices would not change China’s overall soft inflation outlook, Zhou added.
In a sign that strains on Chinese companies are easing, producer prices fell at their slowest rate since November 2014, supported by a government investment spree and higher commodity prices.
The producer price index fell 2.8 percent last month, up from a 3.4 percent drop in April. On a monthly basis, producer prices rose 0.5 percent, the third increase in a row.
China’s consumer inflation rate remains well below the official 3 percent target, and despite strengthening producer prices, analysts do not see inflation at these levels impacting policy decisions.
“At these levels, inflation dynamics are not an important factor in this year’s monetary policy decisions,” said Zhu Haibin (朱海濱), chief China economist at JPMorgan Chase & Co. “We still see one interest rate cut this year. It is a close call, but we see that it is still likely to happen. We moved the timing to the fourth quarter when we see the growth dynamics slowing down.”
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