Consumer Price Inflation Slows in China

The price statistics came a day after China released export and import data for May that were considerably weaker than most economists had expected.

The consumer price index showed subdued inflation for the goods and services typically purchased by Chinese households, with prices up 2.1 percent from a year earlier – a slower pace than in April, when prices had been up 2.4 percent, and below the 2.5 percent rate that economists had forecast for May.

Many factories and other producers actually had to cut prices again last month, as producer prices declined 2.9 percent from a year earlier. These prices had been down 2.6 percent in April and down 1.9 percent in March, and the steeper May decline is a sign that deflation may be gathering momentum.

Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, said in an e-mail that the price statistics reflected a mix of weak global prices for raw materials and sluggish worldwide demand for Chinese exports, and also raised questions about the strength of Chinese domestic demand.

The National Bureau of Statistics is scheduled to release May statistics for industrial output, retail sales and fixed-asset investment on Sunday afternoon. Economists have been waiting for those figures in order to gain a better sense of whether economic growth is stalling in China, after a surge in the winter that was propelled by heavy bank lending.

In many economies, the weak inflation and even deflation now seen in China could be a sign that the central bank should expand the money supply and the government should spend more, so as to stimulate growth. But Prime Minister Li Keqiang hinted strongly on Saturday that the government is leery of bailing out the economy with either another round of massive bank lending or extra government spending.

The state-run Xinhua news agency said that during a meeting near Beijing, Mr. Li told provincial leaders that macroeconomic policy should be kept stable, government spending should be controlled and policy makers should focus instead on regulatory changes. Such changes may improve the efficiency of the economy.

China’s state-controlled banking system has lent very aggressively for the past four years, helping the Chinese economy avoid the global economic downturn but also producing sharp annual increases in total debt as a share of economic output. That has made Chinese leaders leery of relying on further increases in lending to sustain what had been nearly double-digit economic growth.

Mr. Li and President Xi Jinping have been urging economic reforms this spring. But they face powerful vested interests opposed to specific policy changes, like a breakup of the monopolies and oligopolies of state-owned enterprises in many sectors of the economy.

It is unusual for China to release a large batch of economic statistics on a Sunday. But Monday, Tuesday and Wednesday are national holidays.

Article source: http://www.nytimes.com/2013/06/10/business/global/in-china-more-signs-of-slowing-growth.html?partner=rss&emc=rss