China reports slowdown in rise of consumer prices

Inflation worries * April's reading showed a 1.8 percent rise in consumer prices from the year before. * The result was down from a 2.7 percent rise in March. * The decline is seen as quite sharp. * Analysts said the decline was driven by a fall in food prices, which account for one-third of China's inflation index. * Slowing inflation could keep China's central bank from raising rates. * Analysts are skeptical that inflation is under control, however, citing price pressure in other segments of the economy.

China's inflation rate eased to 1.8 percent last month for the lowest figure recorded so far this year, official data showed yesterday, but analysts warned the price relief would be short-lived.

The rate for last month was down from a 2.7 percent year-on-year rise in March, the National Bureau of Statistics (NBS) said.

The NBS gave no explanation for the drop in prices but the substantially lower Consumer Price Index (CPI) reading is likely to temporarily ease inflation worries that have persisted as China's economy has roared ahead at growth rates above 9 percent.

"It is quite a sharp drop in inflation compared with earlier in the year, driven to a large extent by the drop in food prices, lower grain prices," said Robert Subbaraman, analyst at Lehman Brothers.

Food which make up about one-third of China's inflation index, were down significantly compared to previous months, showing only a gain of 3.1 percent compared to April last year.

Slowing is also likely to prevent China's central bank from hiking interest rates, at least for the time being, as part of broad-based efforts to slow overheating in the world's fastest growing major economy.

Going however, analysts were skeptical that inflation had really been brought under control, with price pressure already showing clear signs of building in other parts of the economy.

"The economy is still growing at a rapid clip, the PPI [producer prices index] was high at 5.8 percent, there is price pressure in the pipeline," Subbaraman said.

PPI, which measures prices at the factory gate, rose to 5.8 percent year-on-year last month from 5.6 percent in March, after braking since producer prices peaked at 8.4 percent last October.

"Crude oil prices rose by 37 percent, diesel prices by 23 percent, gasoline by 22 percent and coal prices by 26 percent," said Tim Condon, chief analyst at ING in Singapore.

"These price pressures will put upward pressure on fuel-related consumer prices and, due to transport sector inefficiencies, the food component of the CPI," Condon said.

Sky-rocketing prices, which the government has battled with a series of restrictive measures, could pose a further danger, said Wang Zhao, a researcher at the Development and Research center of the State Council

"Although there have been a series of measures to cool the sector, a hike of housing loan interest rates is still needed," Wang said.