UPGRADE 2-China May inflation soft but manufacturer deflation reduces, policy seen stable

A supplier selling watermelons naps as he awaits clients at a market in Taiyuan, Shanxi province, July 17, 2013.

Reuters/Jon Woo/File Photo

China’s customer inflation rose less than forecast in May as pressure from high food prices reduced, while producer prices recuperated more than forecast, making complex the view on how much room the central bank needs to additional assistance the economy. The consumer cost index (CPI) increased 2.0 percent year-on-year in Might, compared to a 2.3 percent increase in April. Food rates were up 5.9 percent year-on-year in Might after rising 7.4 percent in April Rates of China’s staple meat pork rose 33.6 percent last month and hit record levels last week. Non-food costs increased 1.1 percent, flat from April and continuing to show a lack of rate pressures that would suggest activity in the wider economy was acquiring steam. Experts surveyed by Reuters had actually expected customer inflation to come in at 2.3 percent, the very same pace as in each of the previous 3 months.

China’s customer inflation rate continues to be well listed below the official 3 percent target, suggesting persistently slow demand and down pressure on costs from massive factory overcapacity. On the other hand, a lack of inflationary pressures has provided the Chinese government self-confidence it can continue with stimulus measures to support growth that cooled to the lowest in 25 years in 2015.

In an indication that pressures on Chinese business are slowing alleviating, May producer prices fell at their slowest rate since November 2014, supported by a pickup in government financial investment spending and greater product costs. The producer cost index (PPI) fell 2.8 percent in May, alleviating from a 3.4 percent drop in April, and increased 0.5 percent month-on-month.

Experts had expected the producer rate index (PPI) to fall 3.3 percent, extending a more than four-year string of declines. China’s Financing Ministry Lou Jiwei said on Monday that China will continue with a “reasonably loose financial policy” and has room to broaden its 100 billion yuan ($ 15.22 billion) assistance plan for laid-off employees in markets hit by cuts in excess capacity. (Reporting by Elias Glenn; Editing by Kim Coghill).

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