China’s inflation accelerated in May to the fastest pace in four months on food costs, while a decline in factory-gate prices moderated.
Consumer prices rose 2.5 percent from a year earlier, the statistics bureau said today in Beijing. That exceeded the median 2.4 percent estimate in a Bloomberg News survey of economists. The producer-price index fell 1.4 percent after a 2 percent decline the previous month.
Inflation below the government’s full-year target of 3.5 percent leaves room for more monetary easing in an economy projected to grow this year at the slowest pace since 1990. While Premier Li Keqiang is resisting broad stimulus, limited loosening has included yesterday’s announcement of a cut in some banks’ reserve requirements from June 16, intended to support agriculture and small businesses.
“Low inflationary pressure provides room for further reserve-ratio cuts in the coming months,” said Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong.
The Shanghai Composite Index gained 1.1 percent to 2,052.53 at the close, its biggest increase since May 12.
Food prices rose 4.1 percent in May from a year earlier, compared with a 1.7 percent gain for non-food costs. China’s economy may expand 7.3 percent this year, according to a Bloomberg survey of analysts, down from 7.7 percent in 2013 and compared with a government target of about 7.5 percent.
Consumer-price increases “won’t impact the scale and pace of the ongoing mini-stimulus,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. He forecast that inflation will be “around” 2.5 percent for the next several months.
A slide in home sales and construction and government efforts to rein in credit risks are weighing on the nation’s expansion. Producer prices have been falling since March 2012.
Capital Economics Ltd. in London estimated a 50 billion yuan ($8 billion) liquidity boost from the 0.5 percentage point reserve ratio cut announced yesterday by the central bank for some lenders, while China International Capital Corp. said the move released 70 billion yuan.
The change applied to two-thirds of city commercial banks, 80 percent of non-county level rural commercial banks and 90 percent of non-county level rural cooperative banks, the central bank said. The move also covered finance firms and financial-leasing and automobile-financing companies.
Combined with moves including an April 25 cut to reserve ratios for rural lenders, the central bank will add about 545 billion yuan of liquidity by the end of June, according to Zhang Zhiwei, an economist at Nomura Holdings Inc. in Hong Kong.
Yuan forwards are headed for the biggest three-day advance since 2012 after the central bank boosted the currency’s reference rate and China’s trade surplus rose in May to a five-year high.
On June 6, Premier Li told officials from eight places, including Beijing, Guangdong, Zhejiang and Hebei, to be proactive in supporting their local economies. While the government doesn’t put gross domestic product above everything else “this doesn’t mean we don’t want a reasonable economic growth rate,” Li said, according to an official statement.
Falling imports in May showed the weakness in domestic demand that is making the Chinese economy more reliant on exports and pressuring Li to roll out broader measures to support growth. The authorities’ steps have so far included tax breaks and accelerating some government spending.
Analysts are divided on whether the government will announce a broader stimulus. Four of 20 analysts surveyed by Bloomberg News in May forecast a national reserve-ratio cut by the end of June, while 10 of 18 said a reduction would occur by the end of 2014.
“Overall liquidity is appropriately ample and the basic direction of monetary policy is unchanged,” the PBOC said in yesterday’s statement. “The PBOC will continue implementing a prudent monetary policy, keep appropriate liquidity, achieve reasonable and appropriate growth in money, credit and aggregate financing, and promote healthy and stable economic operations.”
— With assistance by Xin Zhou