CPI rise lowest for 18 months
By Su Bei (China Daily)
Updated: 2005-06-13 22:32

China's consumer prices rose 1.8 per cent year-on-year in both May and April, the lowest increase since September 2003, the National Bureau of Statistics (NBS) said yesterday.

The consumer price index (CPI), a key measure of inflation based on the cost of a basket of goods and bills, rose 2.4 per cent year-on-year in the first five months of the year.

Qi Jingmei, a senior economist with the State Information Centre, said last month's CPI rise was lower than expected. "This was mainly because of stable food prices and the high base effect of last year," she said.

Food prices rose 2.8 per cent year-on-year in May, while grain prices dropped 1.6 per cent, according to NBS figures.

The government's measures to bring prices under control also contributed to the low CPI increase, Qi said.

The National Development and Reform Commission said in April that in areas where the CPI rises more than 4 per cent year-on-year for three consecutive months or shows a single 1 per cent month-on-month rise, local governments will not be allowed to raise public utility charges for services such as water and electricity.

Zhu Jianfang, an economist with Beijing-based China Securities, said increases in China's CPI are expected to remain at a low level for the rest of the year.

"The CPI is likely to rise about 2.5 per cent over the whole of the year," he predicted.

The situation has reduced the possibility of a further interest rate rise, although CPI is not the sole indicator for the government's rate decisions, Zhu said.

China's CPI reached a seven-year high of 5.3 per cent in July and August last year and has been in decline since. Last year's CPI stood at 3.9 per cent.

Zhuang Jian, a senior economist with the Asian Development Bank, said May's low CPI increase was not surprising.

Government policies and falling grain prices have combined to create conditions conducive to low CPI increases, he said.

In the latest move, seven government departments including the Ministry of Construction, Ministry of Finance and the National Development and Reform Commission, announced eight measures including tax policies and stricter land control measures to keep real estate prices stable.

"The measures will have an impact on home rentals, one element of the CPI," Zhuang said.

Last month, prices for raw materials, fuel and power rose 9.9 per cent year-on-year, while the producer price rose 5.9 per cent.

But Zhuang said higher producer prices are unlikely to be passed on to consumers, as firms will prefer to cut profit margins rather than lose market share to fierce competition.

Clothing prices in May were down 2.2 per cent year-on-year, and vehicle prices dropped 3.4 per cent.

Prices of communications products including mobile phones fell 16.6 per cent.

Zhuang said there is little possibility that the country will suffer deflation. The internal vitality of the Chinese economy is very strong, he said.

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