China May consumer inflation cooler than expected but producer prices perk up

 A customer buying vegetables at a market in Fuyang, Anhui province.
A customer buying vegetables at a market in Fuyang, Anhui province.PHOTO: AFP

BEIJING (REUTERS) - China's consumer inflation rose less than forecast in May as pressure from high food prices eased, while producer prices recovered more than forecast, complicating the view on how much room the central bank has to further support the economy.

The consumer price index (CPI) rose 2.0 per cent year-on-year in May, compared with a 2.3 per cent increase in April. Food prices were up 5.9 per cent year-on-year in May after rising 7.4 per cent in April.

Analysts polled by Reuters had expected consumer inflation to come in at 2.3 per cent, the same pace as in each of the previous three months.

Non-food prices rose 1.1 per cent, flat from April and continuing to show a lack of price pressures that would indicate activity in the broader economy was gaining steam.

China's consumer inflation rate remains well below the official 3 per cent target, indicating persistently sluggish demand and downward pressure on prices from massive factory overcapacity.

On the other hand, a lack of inflationary pressures has given the Chinese government confidence it can continue with stimulus measures to support growth that cooled to the lowest in 25 years in 2015.

In a sign that strains on Chinese companies are slowing easing, May producer prices fell at their slowest rate since November 2014, supported by a pickup in government investment spending and higher commodity prices.

The producer price index (PPI) fell 2.8 per cent in May, easing from a 3.4 per cent drop in April, and rose 0.5 per cent month-on-month.

Analysts had expected the producer price index (PPI) to fall 3.3 per cent, extending a more than four-year string of declines.

China's Finance Ministry Lou Jiwei said on Monday that China will continue with a "relatively loose fiscal policy" and has room to expand its 100 billion yuan (S$20.54 billion) assistance plan for laid-off workers in industries hit by cuts in excess capacity.