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Analysts say CPI likely to drop
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Consumer prices may drop below 8 percent in May, an indication that inflationary pressure has already peaked, analysts said.

The National Bureau of Statistics is scheduled to release Producer Price Index data tomorrow and Consumer Price Index information on Thursday.

Wang Qing, an economist with Morgan Stanley Research, predicted the CPI for last month would drop to 7.7 to 8.0 percent, down from 8.5 percent in April.

"We base our estimate on the high-frequency data for food prices. If CPI inflation in May were to register below 8 percent, the downward trend in headline CPI would be established," Wang said.

According to the latest data released by the Ministry of Commerce, prices of vegetables were down 21.7 percent last month compared to April. The price of meat also fell by 0.3 percent in the period. Other food prices such as grain, eggs and cooking oil were stable.

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

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

In April, the CPI rebounded to 8.5 percent from March's 8.3 percent because of uncurbed food costs and snowstorms that damaged crops and cut transport in many parts of the country.

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

However, controlling inflation remains a top priority for the government, the report said.

"The CPI jumped 8.2 percent through April, the highest since 1996. It put the target of controlling inflation under 4.8 percent for the whole year a hard goal to realize," the central bank said. "So the government still needs to keep inflation control at the top of the agenda."

On Saturday, the reserve requirement was raised by 1 percentage point to 17.5 percent on yuan deposits, again stressing the determined stance of a tight monetary policy to curb lending and inflation.

The move was the fifth this year and the second in June. It is rare for the central bank to raise the ratio twice in one month, said earlier reports.

(Shanghai Daily June 10, 2008)

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