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PPI slows on falling oil prices

By Zhang Yu (China Daily)
Updated: 2007-06-12 15:19

China's producer price index (PPI) slowed in May on declining oil prices, while living materials, a major constituent of PPI, expanded faster than the month before due to soaring food prices.

According to figures released yesterday by the National Bureau of Statistics (NBS), the factory-gate price rose 2.8 percentyear-on-yearin May after gaining 2.9 percent in April.

"The slowdown of the growth rate is mainly caused by the adjustment of oil prices," said Chen Jijun, a macroeconomic analyst from CITIC Securities. The producer prices of crude oil dropped by 3.9 percent in May.

Meanwhile, living materials - including foods, dresses and ordinary goods as well as durable goods - expanded 2.4 percent in May from a year earlier after gaining 2.1 percent in April. Among them, the produce price of foods jumped 6.3 percent in May from a year earlier.

"The pickup in its growth rate largely stems from soaring prices of foods and indicates a higherconsumer price indexin May," Chen said, adding that living materials will heavily impact the consumer price index.

The consumer price index (CPI) is scheduled to be announced today by the NBS. It's expected that the CPI in May jumped more than 3 percent. If so, it would make China's CPI grow faster than its PPI for four consecutive months.

Starting from this January, China's CPI has begun to grow faster than its PPI, which captures price movements prior to theretaillevel, despite the latter having long grown at a faster pace than the former.

"Weak domestic consuming power is the main reason for the slow CPI growth in the past four years despite robust economic expansion in the meantime," said Li Wenpu, an economist from Xiamen University.

If core CPI excluding foods and energy catches up with or overtakes PPI, it may indicate a great shift of economic development, Li said.