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Monthly CPI rises 7.7% in May
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China's consumer price index (CPI), the main gauge of inflation, in May was 7.7 percent up from the same period last year, the National Bureau of Statistics (NBS) said on Thursday.

The figure, compared with 8.5 percent in April and a 12-year high of 8.7 percent in February, was broadly in line with most forecasts, but still in excess of the government's annual target of 4.8 percent.

The May CPI rose 7.3 percent in urban areas, and 8.5 percent in rural areas, according to statistics.

Meat prices increased 37.8 percent, with pork surging 48 percent alone. Cooking oil went up 41.4 percent, with vegetables increasing 10.3 percent, aquatic products rising 18.3 percent and grains up 8.6 percent.

"The CPI growth rate has been declining, and the trend is expected to continue in the next few months," said Zhang Liqun, a macro-economist with the Development Research Center of the State Council, China's Cabinet.

"China still faced inflationary pressure, but this will improve, as food prices -- the main driving factor of high inflation -- started to decline."

Food prices, which accounted for more than a third of the CPI calculation, soared 19.9 percent in May, 2.2 percentage points lower than the growth in April.

Transport and telecom prices fell 1.6 percent compared to last May. Clothing, amusement, education and other services prices also declined in May.

Non-food prices in May were up 1.7 percent over a year earlier , compared with April's growth rate of 1.8 percent.

Yin Jianfeng, an economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said soaring grain and oil prices on the international market greatly contributed to the country's inflation.

"Food prices on the world market were the highest in 30 years. Surging crude oil prices and a weakening U.S. economy also brought pressure to China's domestic market."

"But the high prices are not expected to last long. They may face a turning point and start to decline gradually. China's economy will in turn improve, and the inflation may certainly ease."

Yin added the government shouldn't resort to further increases in interest rates and bank reserve ratios. "This won't help curb inflation."

The central bank has raised interest rates six times and the reserve-requirement ratio 14 times since last year to curb inflation and prevent economic overheating.

The latest move was on June 7 when the government ordered commercial banks to raise the reserve-requirement ratio by one point in June.

"It seems that it is a bit more difficult for China to achieve the government's annual target of 4.8 percent," Yin added.

Zuo Xiaolei, Galaxy Securities chief economist, echoed Yin's view, saying a high producer price index (PPI) indicated China still faced inflationary pressure, and this would last for a period of time.

The PPI, which measures the value of finished products when they leave the factory, rose 8.2 percent in May from the same month last year. The figure was 8.1 percent in April.

Zuo said higher ex-factory prices could lead to rising CPI, as producers might seek to pass on the increasing costs to consumers.

"The country's inflationary pressure is expected to ease by the end of this year when the economy situation in neighboring countries improves and the U.S. currency becomes stronger," said Yin.

On Wednesday, the General Administration of Customs said China's monthly trade surplus dropped to 20.2 billion U.S. dollars in May, down 10 percent from the same month last year.

In the first five months, the inflation indicator rose 8.1 percent over the same period last year, 7.7 percent up in urban areas and an 8.8 percent increase for the countryside.

(Xinhua News Agency June 12, 2008)

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