China Inflation


Inflation climbs to three-year high in May

In May, consumer prices rose 5.5% over the same month the year before, which was above the 5.3% increase tallied in April but broadly in line with market expectations. The strong reading recorded in May represented the fastest price increase since August 2008. The main driver behind the annual increase was a foodstuff price rise of 11.7% (April: +11.5% year-on-year). That said, all the main sub-components of the consumer price index recorded gains or remained unchanged over the same month last year, confirming the notion that consumer prices are advancing on a broad front. Owing to higher inflation registered in May, annual average inflation rose to 4.5% (April: 4.3% yoy). Inflation is pushing higher in spite of ongoing aggressive monetary tightening measures, which have apparently helped to prevent overheating risks. Inflation continues to accelerate, mainly due to higher food prices as drought and other adverse weather conditions have decimated crops in wide parts of the country. In addition, massive capital inflows via exports and foreign investment, along with an exchange rate controlled by the purchasing of foreign currencies, are boosting money supply. Producer price inflation remained unchanged at 6.8% in May, which came in above market expectations of a 6.5% increase. Owing to the flat reading, the annual average producer price inflation was also unchanged at 6.1% in May.

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