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Retail, wholesale prices may dip in May

By Si Tingting (China Daily)
Updated: 2009-06-04 09:18

Retail, as well as wholesale, prices are likely to remain in negative territory in May, analysts and financial institutions surveyed recently have said.

The dip is however being seen as a temporary phenomenon, with prices expected to inch higher in the coming months as economic activity starts to pick up.

Related readings:  April retail sales slip 6.9% year-on-year  Retail sales jump, factory output slows  Wholesale price of refined oil jumps in South China  Oil products wholesale price hikes

The Economic Observer Online, a Chinese-language website, recently surveyed nine financial institutions, and the results showed that consumer prices in May were likely to plunge by 1.4 percent year-on-year due to seasonal declines in food prices. Producer prices were shown to drop by 6.4 percent on the back of higher commodity prices.

The official May inflation indicators are likely to be released next Wednesday.

The Consumer Price Index (CPI), a key gauge of the rate of inflation, fell 1.5 percent in April from a year earlier, the third straight monthly decline, the National Bureau of Statistics said last month.

The Producer Price Index (PPI), which monitors factory-gate price changes, slid for the fifth month, dropping 6.6 percent in April from a year earlier, compared to the 6 percent drop seen in March.

"As signs of a global recovery become more pronounced, consumer prices would show an up trend in June or July, even if the government does not do anything about it, such as cutting interest rates," said Fang Sihai, chief economist at Hongyuan Securities. He said all the major economies in the world are witnessing negative growth in CPI and PPI.

Although Fang believed that a few more months of deflation was possible, China was unlikely to face a prolonged bout of falling prices that would force further cuts in official interest rates.

Wang Yuanhong, senior economist and head of the Economic Forecasting Department of the State Information Center, said the slump in producer prices and consumer prices partially reflected the comparison with the same period last year when there was a big surge in commodity prices as well as food prices.

The recent fuel price hike may help China's price measures move closer to positive territory, Wang said. "But the impact may be limited, as car owners are a very small proportion of the entire population," he said.

"Instead, a price hike of electricity, water and natural gas will be more useful to turn consumer prices into positive territory, but the government will be very cautious in making the decision," he said.