By Chen Jia
China's consumer inflation rate in May was the slowest in two years, and the year-on-year industrial product prices dropped to a 30-month low, raising concerns about further economic contraction because of the weakening demand with a possible worsening of the European crisis.
Inflation is expected to ease more in the coming two months, which will invite additional macroeconomic policy fine-tunings to stress priority of stabilizing growth, analysts said.
The country's consumer price index (CPI), a main gauge of inflation, slowed to 3 per cent last month from a year earlier, the lowest since July 2010.
The figure was 3.4 per cent in April and 3.6 per cent in March.
The National Bureau of Statistics released the new data on Saturday.
Last month, the CPI decreased by 0.3 per cent from a month earlier, and it was lower than the market's prediction of 3.2 per cent.
"The inflation downturn is likely to be prolonged and it may fall to less than 3 per cent in June," said Wang Yuwen, an economist with the Finance Research Center of the Bank of Communications.
Food prices, which account for about 30 per cent of the weight in the calculation of CPI, increased 6.4 per cent in May year-on-year, compared with 7 per cent in April, contributing about 2 percentage points of the inflation, according to the NBS.
The pork price, regarded as one of the most important indicator of food prices, dropped for the first time in two years, by 0.6 per cent.
Vegetable prices declined by 6.9 per cent from April, the NBS showed.
Li Daokui, a former adviser to the central bank's monetary policy committee and a professor at Tsinghua University, said on Saturday that the easing food prices contributed the most to the decrease in inflation.
"In the next five months, the year-on-year CPI may stay around 2.6 per cent, with a full-year expectation of 3 per cent, providing more space for the macroeconomic policy fine-turning as well as supporting the interest rates and resource price reforms," Li said, adding that now is the "best chance" in many years.
On Friday, the government cut gasoline and diesel prices to curb the faster-than-expected slowdown in the economy.
The producer price index (PPI), which reflects industrial inflation, sharply dropped by 1.4 per cent from a year earlier, compared with a forecast of a 1.1 per cent drop.
This indicates that the inflation pressure of the raw- material cost is continually easing amid the decreasing global commodities' prices, said Qu Hongbin, chief economist in China with HSBC Holdings PLC.