MNI DATA ANALYSIS: China Food-driven CPI May Not Impact Policy

     BEIJING (MNI) - China's highest inflation in over a year was mostly caused

by food and unlikely to change the official monetary policy stance given the

limited scope of higher consumer prices.

     Inflation was 2.7% y/y in May, up from April's 2.5%, the National Bureau of

Statistics said on Wednesday. That falls in line with the projection by

economists polled by MNI. PPI rose to 0.6% y/y, down from April's 0.9%, also

meeting market expectations.

     Many economists interpreted the data as a temporary phenomenon. Food prices

rose 7.7% y/y from April's 6.1%. The price of fresh fruit jumped 26.7% y/y to a

record from 11.9% in April. The price of pork was up 18.2% y/y from 14.4% in

April. The two categories added 0.86 percentage point (pp) to overall inflation,

the NBS said.

     Core CPI, excluding food and energy prices, slowed to 1.6% y/y from April's

1.7%, according to CICC.

     --EASING INFLATION PRESSURE

     Inflation pressure has eased and pork alone may not push up the headline

CPI significantly, said Deng Haiqing, chief economist at WallstreetCN in a

report.

     The prices of vegetable and fruit are expected to fall given increased

seasonal supplies. Petroleum price will decline in June due to the slump of oil

price at the end of May, according to Deng.

     CPI is "very unlikely" to break the government's 3% ceiling this year, Deng

said.

     PPI rose 0.6% y/y, down from April's 0.9%. The gain over May slowed to 0.2%

from 0.3% m/m in April-March, largely due to declining petroleum prices.

     --LOWER PETROLEUM PRICES

     Ex-factory prices of petroleum extraction industry and fuel processing

sector were up 6.7% and 2.3% y/y, down by 3.4 and 1.9 pps from April.

     PPI also measured lower due to a high base of comparison last year, the NBS

said.

     PPI may further slow given uncertain external demand and the slowing profit

growths experienced by industrial companies, according to CICC.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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