Indexes augur well for China

A consumer chooses fruits at a supermarket in Handan, Hebei province. The consumer price index rebounded to a four-month high of 2.5 percent in May from a year earlier, the National Bureau of Statistics said on Tuesday. [Photo/China Daily]

China's consumer inflation climbed from an 18-month low in April to usual levels in May, while factory price deflation eased, indicating that the sluggish economy is slowly stabilizing.

The consumer price index, the main gauge of inflation, rebounded to a four-month high of 2.5 percent in May from a year earlier, quickening from a worrying 1.8 percent rise in April, the National Bureau of Statistics said on Tuesday.

On a month-on-month basis, consumer prices rose 0.1 percent, ending the previous two straight months of decline, but are still lower than the 1 percent month-on-month gain recorded in January, the NBS said.

Subdued inflation levels are considered good for consumers and when an economy is in an expansion cycle, economists often welcome lower inflation. But when an economy enters a downward cycle, as China now is, low inflation often raises deflation concerns. Falling prices encourage consumers to put off spending and companies to delay investment, both of which act as brakes on growth.

Yu Qiumei, an analyst with the NBS, said the CPI growth was mainly fueled by higher food prices, particularly a 20 percent surge in the cost of fruits.

Food prices rose 4.1 percent over a year earlier, pulling the overall CPI up 1.35 percentage points, according to NBS. Unlike developed economies, food prices account for a bulk of the CPI in China.

Another key indicator that gauges the factory gate price, the producer price index, narrowed its decline by falling 1.4 percent in May from a year earlier, versus a 2 percent fall in April.

It is the 27th consecutive month of decline for the indicator, a fact that is particularly painful for upstream industrial manufacturers.

Kuang Xianming, director of the Research Center for Economy at the China Institute for Reform and Development, however, said that there are a lot of positives in the CPI data.

"A notable change is that the CPI has reversed the month-on-month decline recorded for the previous two months, signaling that the endogenous power of economic growth is increasing," he said.

"It's also a reflection of improving demand. The reserve requirement ratio cuts announced by the central bank will help unleash more demand," Kuang said.

Prices for housekeeping, processing and maintenance services jumped 7.1 percent and those for tourism surged 8.1 percent year-on-year, much higher than the average growth rate.

China consumer prices up 1.8% in April	China's inflation up 2.4% in March