China’s May inflation rises amid signs rapid rebound from downturn is slowing

The Associated Press ~ staff The News
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BEIJING — China’s inflation rose in May amid signs its rapid rebound from the global slump is slowing, adding to pressure on Beijing to control politically sensitive food prices and keep growth on track.

Consumer prices rose 3.1 per cent from a year earlier, up from April’s 2.8 per cent rate, the National Bureau of Statistics said Friday. Growth in investment and factory output slowed but still was at double-digit levels.

Rising inflation has prompted concern Beijing might hike interest rates or take other steps to cool growth that hit 11.9 per cent in the first quarter. That could affect the United States, Europe and other trading partners that are looking to China, the world’s No. 3 economy, to help drive demand for their iron ore, factory machinery and other exports.

A statistics bureau spokesman rejected suggestions China might face “stagflation” — a damaging combination of rising prices and slowing growth. He said the communist government can achieve its official goal of keeping inflation under 3 per cent for the year.

“There is no problem of stagnation,” said the spokesman, Sheng Laiyun, at a news conference. He said the economy’s “three driving forces” — trade, investment and consumer spending — “are still rising.”

Analysts expect China’s rapid expansion to slow in coming months as the initial impact of its 4 trillion yuan (US$586 billion) stimulus wanes. The World Bank’s forecast for full-year growth is 9.5 per cent.

A growth slowdown could complicate efforts to control prices because the standard tool of rate hikes might further chill economic activity.

“In the second half of the year, growth is going to be slightly disappointing, inflation is going to be slightly too high,” said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates. “That clearly puts the Chinese government in a policy quandary.”

May inflation was driven by a 6.1 per cent rise in food costs, a sensitive issue in a country where some families spend half their incomes on food. Wholesale inflation accelerated to 7.1 per cent from April’s 6.8 per cent rate, suggesting shoppers might face higher prices as retailers pass on rising costs.

The government has imposed lending curbs to cool a surge in housing costs and is trying to block overinvestment in some industries such as steel production. But it has avoided interest rate rises or other measures that might slow the overall economy.

China’s main stock index has lost four per cent since May 25 on concern the government might further tighten access to credit.

May growth in investment in factories and other fixed assets — seen as an indicator of future growth — slipped from April’s 26.1 per cent expansion to 25.9 per cent, the statistics bureau reported. Growth in industrial output declined for a third month, falling to 16.5 per cent from the previous month’s 18.8 per cent expansion.

Two monthly surveys of industrial activity released earlier showed Chinese manufacturing growth slowing in May on sluggish new orders.

In a positive sign, growth in retail sales accelerated slightly in May to 18.7 per cent from April’s 18.5 per cent rate.

May trade figures reported this week showed exports surging by nearly 50 per cent over a year earlier, beating expectations. But analysts said trade growth was likely to slow as the European debt crisis dents the continent’s consumer spending.

Organizations: National Bureau of Statistics, World Bank, Stone McCarthy Research Associates

Geographic location: China, BEIJING, United States Europe

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