China CPI Falls 1.5% in April on Lower Food
By wchung | 10 May, 2009

China’s inflation rate fell for the third month in a row in April as prices for foods and energy plunged from high levels the year before.

The consumer price index, which is heavily weighted toward food items, fell 1.5 percent in April from a year earlier after declining 1.2 percent in March, the National Statistics Bureau reported Monday.

Food prices fell 1.3 percent, with prices for meat falling 13.5 percent, the bureau said in a statement on its Web site.

China’s inflation rate peaked early last year amid surging costs for food and energy.

A key factor then was shortages of pork due to an outbreak of blue ear disease. The ailment, also known as porcine reproductive and respiratory syndrome, killed hundreds of thousands of pigs before it was brought under control.

The outbreak caused farmers to stop raising pigs because of worries they would become infected. That sent the price of pork — China’s staple meat — sharply higher.

In April, pork prices plunged 28.6 percent, the Statistics Bureau said.

Meanwhile, it reported that producer prices fell 6.6 percent in April from a year earlier, compared with 6.0 percent in March, thanks largely to lower energy costs.

Overall, costs for fuel and raw materials fell 9.6 percent in April, the report said.

Deflation is expected to persist for several months due to excess inventory in many industries amid the global economic downturn. Sharp declines in crude oil prices and costs for other commodities will ensure that.

But signs of economic recovery in China suggest a reduced risk for a prolonged bout of lower prices that could drag growth lower if consumers put off purchases in expectation of lower prices, forcing companies to cut wages and investment, economists say.

The government has pumped billions of dollars into construction projects and other spending aimed at stimulating demand and propping up growth. Recent improvements in manufacturing, auto sales and real estate transactions are seen as evidence the strategy has begun to work, despite persistently weak demand for Chinese exports in overseas markets.

“Deflationary concerns appear to be subsiding as the economy shows signs of recovery,” Jing Ulrich, chairwoman for China equities at J.P.Morgan said in a report to clients.

“Consumer prices should show an uptrend in the second half of the year. Importantly, expectations of rising prices in the future will encourage consumer spending,” Ulrich said.

She said prices will also rise as the government continues liberalizing controls on utility rates and fuel prices, which have been kept lower than global levels.

5/10/2009 11:13 PM ELAINE KURTENBACH AP Business Writer SHANGHAI