A vendor arranges watermelons as he waits for customers at his stall in a market in Huaibei, Anhui province of China. — Reuters photo

China’s inflation dipped to a two-year low in May while economic activity remained weak, reinforcing expectation that further policy easing could be in the pipeline to head off a sharper slowdown in the world’s second-largest economy.
The spate of data released by the National Bureau of Statistics on Saturday was not as grim as the market had feared after China’s surprising interest rate cut this week — the first since the depths of the 2008/09 global crisis.
Industrial output rose 9.6 per cent in May from a year earlier, picking up slightly from the 9.3 per cent pace in April but was still near the weakest level in three years.
Fixed-asset investment rose 20.1 in the January-May period from a year earlier, easing a little from 20.2 per cent in the first four months and hovering near a decade-low, while retail sales growth slowed to 13.8 per cent in May from April’s 14.1 per cent.
Reuters polls published earlier in the week forecast industrial output to rise 9.9 per cent in May, while retail sales were seen up 14.3 per cent and fixed-asset investment was seen at 20 per cent.
But the central bank’s interest rate cut on Thursday had fanned market fears that data for May could be rather gloomy.
‘The data may not be as grim as the market had feared but economic activity remains sluggish in May,’ said Hua Zhongwei, economist at Huachuang Securities in Beijing.
‘The economy could stabilise if the government takes effective stimulus measures, but there are also risks that growth could slow down further,’ he said.
China’s consumer inflation cooled faster than forecast to two-year lows of 3 per cent in May, and is widely expected to head even lower in coming months.
‘Price pressures eased in May and the easing could accelerate in coming months. This supports the central bank’s move to cut interest rates,’ said Zhang Yongjun, an economist at China Centre for International Economic Exchange, a top government think-tank.
In a sign that price pressures could slow further, China’s producer prices also fell more than forecast by 1.4 per cent from a year ago, compared with estimates for a 1.1 per cent decline, marking the third straight month of producer price deflation.
May’s inflation reading is the lowest since June 2010.
‘June inflation is very likely to dip below 3 per cent and probably cool further towards the year-end,’ Zhang said. ‘We cannot rule out the possibility of more rate cuts, and the reserve requirement ratio should be cut more frequently.’
The price data comes just two days after China’s central bank cut lending and saving rates by 25 basis points to put a floor beneath slackening economic growth.
That price pressure is cooling is in stark contrast to the situation a year ago, when consumer inflation raced to a three-year peak of 6.5 per cent in July, prompting authorities to stridently tighten monetary policy.
Food inflation, the top concern for shoppers and policymakers, moderated to 6.4 per cent in May from April’s 7 per cent, as falling fruit and pork prices offset a jump in vegetable prices.