China CPI gains in May but underlying pressures limited

Consumer price gains in China accelerated during the month of May but economists warned that the underlying pressures were pointing in the opposite direction.

China's consumer price index advanced at a 1.5% year-on-year pace last month, up from 1.2% in April, as expected by economists.

However, Julian Evans-Pritchard at Capital Economics pointed out how that was mostly to do with slower price declines in the cost of food.

Food price inflation rose from -3.5% year-on-year in April to -1.6% for May.

Evans-Pritchard also made the point that the price of foodstuffs tends to be volatile with pork rearing cycles and not economic conditions the main driver.

Non-food inflation on the other hand edged lower, from a 2.4% year-on-year clip to 2.3%.

Price pressures at the factory gate also lessened in May, with the country's producer price index retreating from a 6.4% year-on-year pace to 5.5%, amid a rout in commodity prices.

"We think consumer price inflation will remain fairly stable over the coming quarters thanks to a further recovery in food price inflation. More importantly, however, we expect price pressures elsewhere to continue to ease as economic activity slows, disappointing hopes for a sustained period of reflation that would help erode corporate debt burdens," Evans-Pritchard said.