Inflation in China accelerated again after
easing slightly in April. The headline Consumer Price Index (CPI) inflation in May 2011 reached a 34-month high of 5.5% yoy vs. 5.3% in April, matching consensus estimates.
Food remains to be the category with the fastest price increases, rising 11.7% yoy, while non-food items rose 2.9% yoy. On a month-on-month basis, however, food prices fell 0.3%, thanks to the
continuous fall of vegetable prices, while non-food items rose 0.2%. It is, however, not quite so clear about the impact of
drought and flood on food prices in the coming months.
The producer price index (PPI) also shows continued inflationary pressure. PPI inflation remained at 6.8% yoy, rising at the same rate as in April, but higher than the consensus of 6.5% yoy.
The same data release also points out that industrial production growth slowed from 13.4% yoy to 13.3% yoy, while market was forecasting a 13.3% yoy increase, and retail sales rose 16.6% yoy vs. 16.5% in April, but lower than consensus of 16.9% yoy. Also, fixed asset investment (excluding rural) increased by 25.8% yoy vs. the consensus of 25.2%.
The latest data points confirm the need for continued monetary tightening in the coming months as inflationary pressure remains, and that is not a particularly good news for Chinese policy makers. The policy makers are caught in a dilemma where inflation and high property prices remain a big issue while the economy is slowing. I now expect that the People’s Bank of China will be very careful in any further move as
the risk of hard-landing is on the rise, even thought further tightening is still probable in the months ahead.
This article originally appeared here:
China: Inflation Accelerated To 5.5% In May
Also sprach Analyst - World & China Economy, Global Finance, Real Estate
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