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China's inflation faster than expected in April
Aggregated Source: Shanghai Daily: Business

China's consumer price index rose 2.4 percent in April from a year earlier, but analysts expect the figures to ease again as poultry and pork prices declined sharply amid the bird flu scare.

The index gained from March's 2.1 percent and was also higher than the market's average expectation of 2.2 percent growth, data from the National Bureau of Statistics revealed yesterday.

Yu Qiumei, a senior economist at the bureau, said the rising costs of vegetables was the major reason for the rebound.

Last month, the costs of fresh vegetables jumped 5.9 percent from a year earlier due to cooler and drier weather. Rice prices surged 5.2 percent. Both of them contributed 0.35 percentage points that pushed up inflation.

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said the risk of higher inflation was diminishing in the near term.

"The inflation momentum has eased sharply after the Chinese New Year, led by decelerating output growth," Zhou said. "Also, the outbreak of the bird flu may keep China's inflation tepid due to falling poultry and pork prices."

In April, pork prices fell 6.5 percent on an annual basis while the overall food prices added 4 percent. Zhou said China's monetary policy stance is more supportive of growth and that the market liquidity conditions will likely remain relaxed in the foreseeable future.

"The subdued inflation outlook can give authorities a chance to engage in fast structural reforms on factor prices (water, electricity, and energy prices), interest rate liberalization, as well as fast deregulation in project approval and private sector participation in the state-sponsored infrastructure programs," Zhou said.

Huang Yiping, an economist at Barclays, also suggested that monetary policy may accommodate lower expectations of inflation and softer economic performance in recent months.

In the first four months, China's inflation rose 2.4 percent from a year earlier, less than the 3.5 percent target for the year.

The Producer Price Index, the factory-gate gauge of inflation, decreased 2.6 percent year on year in April, the lowest since last November, signaling weakening market demand.

Although opinions on inflation were mixed, most analysts saw a fragile recovery in the world's second-largest economy.

"Nearly all China's recent data pointed to slower growth in various industries, indicating insufficient demand for powering ahead China's expansion," said Li Maoyu, an analyst at Changjiang Securities Co. "At least, China should not tighten policies further."

The Purchasing Managers' Index, the gauge of operating conditions in manufacturing sector, fell to 50.6 last month from March's 50.9.

The non-manufacturing PMI, which measures the service sector, also lost 1.1 points from a month earlier to 54.5 in April, both pointing at slower growth of expansion.

Policy tightening in the property market and the recent outbreak of bird flu may have added to the uncertainties, analysts said.

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