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CPI Seen to Go on a Downward Trend

China's consumer prices are expected to ease to below 8 percent in May, and analysts predict that this could be a turning point when inflationary pressure begin to soften.

The National Bureau of Statistics is scheduled to release the May data for the Producer Price Index today and the Consumer Price Index, the main gauge of inflation, tomorrow.

Wang Qing, an economist with Morgan Stanley Research, predicted China's headline CPI in May could have eased to 7.7 percent to 8 percent, down from 8.5 percent in April.

"We base our estimation on data for food prices. If inflation in May were to register a below 8 percent reading, then the headline CPI could lean toward a downward trend," said Wang.

According to the latest data released by the Ministry of Commerce, prices of vegetables in May tumbled 21.7 percent from April's level and prices of meat dipped 0.3 percent. The supply of other foods such as grain and eggs and products like cooking oil was stable.

Liang Hong, a Goldman Sachs economist, estimated the CPI to 7.8 percent in May and 7 percent in June.

Hu Lubin, an analyst at China Merchant Securities Corp Ltd, predicted the CPI may drop to between 7.5 percent and 7.8 percent in May.

The CPI rebounded to 8.5 percent in April from March's 8.3 percent because of unrestrained food costs and the worst snowstorms in five decades in late January and February.

The devastating May 12 earthquake in Sichuan Province may cause prices to increase in the quake-hit areas, but its influence on the overall national CPI is limited, according to a recent central bank report.

"The CPI jumped 8.2 percent through April, the highest since 1996. The rise has made it difficult to meet the target of controlling inflation under 4.8 percent for the whole year," the central bank said. "So the government still needs to place the goal of controlling inflation on top of the agenda."

Last Saturday, China raised banks' reserve requirement by 1 percentage point to 17.5 percent on yuan deposits.

The move was the fifth this year and the second in June. Earlier reports had said it was rare for the central bank to raise the ratio twice a month.

(Shanghai Daily June 11, 2008)

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