Inflation rate slows to 7.7% in May

By Lydia Chen and Wang Yanlin  |   2008-6-12  |     ONLINE EDITION

CHINA'S inflation rate rose at a slower pace of 7.7 percent last month, the National Bureau of Statistics announced this morning.

The consumer price index, the main gauge of inflation, increased 7.7 percent last month year on year, following jumps of 8.5 percent in April and 8.3 in March.

The index jumped to a near 12-year high in February when it stood at 8.7 percent.

"The May CPI data brings some relief to the authorities," said Stephen Green, an economist with Standard Chartered Bank (China) Ltd. "The agricultural sector seems to be responding as vegetable prices have retreated from the peak of a 46-percent year-on-year increase in February."

The CPI grew 7.3 percent in urban areas and 8.5 percent in rural areas last month, the bureau said.

Food costs, accounting for a third of the CPI basket, have been the main force propelling inflation since early 2007 as increasing prices of food stocks pushed up the cost of meat.

Food prices surged 19.9 percent year on year last month. Within the category, meat and poultry prices soared 37.8 percent in April.

The cost of pork, the nation's staple meat, increased 48 percent last month from a year ago while cooking oil prices rose 41.4 percent. Vegetable prices also increased 10.3 percent last month from a year ago. Grain prices gained 8.6 percent in the period.

The combined CPI grew 8.1 percent from January to May, the bureau said.

Wang Qing, an economist with Morgan Stanley Research, said the slower CPI growth defied concerns that the reserve-requirement-ratio increase announced last Saturday was a pre-emptive move on inflation.

"The latest data for May puts us back on track for our call for easing inflation in the remainder of the year," said Wang.

However, there were other price pressures out there, some analysts acknowledged.
The Producer Price Index, the factory-gate inflation gauge, surged 8.2 percent in May to reach a record high in more than three years.