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UPDATE: China May Inflation Slows, Showing Room for Stimulus


--China CPI rises 3.0% in May, down from April's 3.2% rise

--Slowing inflation means there is room for Beijing to stimulate growth

--Policy makers may have seen the data before moving to cut interest rates Thursday


(Adds background throughout, economist's comment in fourth paragraph)

   By Aaron Back 

BEIJING--Inflation in China slowed significantly in May, giving Beijing room to loosen policy and stimulate growth.

The country's consumer price index rose 3.0% from a year earlier in May. That was down from April's 3.4% rise.

The key inflation reading was also below expectations, which were for a 3.2% increase, according to an earlier Dow Jones poll of economists.

"Inflation is easing as expected, or easing even faster than expected, which is mainly due to economic weakening not only in China, but also around the world," said UBS economist Wang Tao.

She expects inflation to keep declining over the coming months, which will give Beijing room to further stimulate the economy.

China's fading inflation pressure shows why authorities have been comfortable in recent months dialing up support for the economy, including the first cut to benchmark interest rates since 2008, which was announced Thursday.

Analysts say elite policy makers in China likely have access to some economic data before they are released to the public. So China's central bank, the People's Bank of China, may have seen the weak inflation reading before it moved to lower rates.

Food prices, which were the main contributor to inflation last year, continued to moderate. Food prices were up 6.4% from a year earlier in May, compared with April's 7.0% rise. Nonfood prices rose 1.4% from a year earlier, compared with April's 1.8% increase.

Meanwhile, the producer price index, which measures wholesale prices paid by businesses, fell by 1.4% from a year earlier in May, compared to a 0.7% decline in April and economists' expectations for a 1.1% decline.


Write to Aaron Back at

--Yajun Zhang in Beijing contributed to this article.


(END) Dow Jones Newswires

June 08, 2012 22:14 ET (02:14 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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