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May CPI to exceed 3%

  • Published 09 Jun 2010

China's consumer price index for May is expected to rise 3.1% from a year earlier, according to a Reuters report today, citing three unnamed people who heard government officials state the figure at an investor conference. The inflation figure, should it be confirmed by the statistics bureau tomorrow, supports our call (CC June 03 Big Call) that May CPI will exceed 3% driven chiefly, in our opinion, by rising food price inflation, which accounts for over 30% of the index. We foresee food CPI to jump to around 6.5%-7.5% in May, up from 5.9% in April.

Even so, non-food CPI is expected to remain fairly stable as some key input prices (such as fuel) are falling and key parts of the economy are cooling. Home prices, for example, have already declined 9.3% from their peak this year in eight major first and second tier cities, according to data compiled by China Confidential (CC May 27 Update Alert). Beijing is thus unlikely to raise lending rates until - and only if - signs of overheating return. We think, in fact, that the cooling phase that we signalled in April (CC Apr 22 Editor's View) may persist for the rest, or much of the rest, of the year.

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