Inflation Rate Drops for Third Month

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May 11 – China’s inflation rate dropped for the third month in a row in April as its consumer price index decreased by 1.5 percent compared from a year earlier after a 1.2 percent decline in March.

According to the National Statistics Bureau (NSB), food prices decreased by 1.3 percent while meat prices fell by 13.5 percent and pork prices dropped by 28.6 percent.

This is a stark contrast from last year’s prices when inflation rate peaked because of the increasing costs of food and energy.

Lower energy costs for the year also led to producer prices falling by 6.6 percent in April compared to 6.0 percent in March.

The NSB report said that overall the cost of fuel and raw materials dropped by 9.6 percent in April. There has also been significant declines in crude oil prices and costs for other commodities. It is anticipated that deflation will continue for a few more months because many industries are reporting inventory excess caused by the global economic downturn.

The government’s stimulus plan is being used to maintain growth through infrastructure development and domestic spending. There are signs from positive figures from the manufacturing, auto sales and real estate industries that the strategy is working.

Economists told The New York Times that these signs of economic recovery suggest a lower risk for a prolonged bout of lower prices that could drag growth lower if consumers put off purchases in expectation of lower prices, forcing companies to cut wages and investment, economists say.

“Deflationary concerns appear to be subsiding as the economy shows signs of recovery,” Jing Ulrich, chairwoman for China equities at J.P.Morgan said in a report to clients.

Ulrich added:”Consumer prices should show an uptrend in the second half of the year. Importantly, expectations of rising prices in the future will encourage consumer spending.”