China April inflation forecast at around 2.2 pct

China's Consumer Price Index (CPI) is likely to grow between 2.2 percent and 2.3 percent in April from a year earlier, slightly up from the 2.1 percent recorded in March, according to forecasts by several institutions.

The official CPI is due to be released by the National Bureau of Statistics on May 9.

The Bank of Communications expects the CPI, a main gauge of inflation, to come in at 2.2 percent in April, and inflation to be mild throughout the second quarter.

The recent outbreak of bird flu and the incident involving the death of pigs in a river in Shanghai have dampened people's appetite for pork, poultry and eggs, bringing their prices down in April, said Tang Jianwei, a senior analyst on macroeconomics at the bank.

Meanwhile, people ate vegetables, fruits and seafood instead, with demand pushing up prices, said Tang.

In terms of non-food prices, Tang said the latest round of property tightening has squeezed some people out of the housing market and pushed up rental demand and rents.

Meanwhile, a cut in fuel prices was seen in April, bringing down the logistics cost of the economy.

First Capital said food prices are expected to rise 3.2 percent in April from a year earlier, contributing 1 percentage point to inflation. The prices for non-food items will rise 1.7 percent, contributing 1.2 percentage points to the CPI increase. The agency also projected the CPI at 2.2 percent.

Shenyin WanGuo Securities put the inflation forecast at 2.3 percent, with the prices for food and non-food items rising 3.1 percent and 1.9 percent year on year, respectively.

The institutions generally believed that the CPI will be mild throughout the first half of the year, citing the Chinese government's frugality campaign, the spread of bird flu, and falling commodity prices in the global market.

But experts warned of the impact of global quantitative easing on China's inflation.

Li Xuesong, deputy director of the Institute of Quantitative and Technical Economics, Chinese Academy of Social Sciences, said the CPI is expected to rise 3.4 percent year on year in 2013, 0.8 percentage points faster than the reading in the previous year. He added that the level is "controllable."

Regarding producer price index (PPI), a barometer of future consumer inflation, institutions held that it will continue to be in negative territory in April as domestic fuel prices fell, global commodity prices exhibited a downward trend and China's economic recovery remained weak.

The Bank of Communications expected PPI to decline 2.1 percent year on year in April while the China International Capital Corp (CICC) projected it at negative 2.8 percent.

Previous figures showed that China's PPI, an index tracking changes in prices that producers charge for their output, has fallen for the 13th consecutive month. It dropped 1.9 percent year on year in March.

Zhao Yang, an analyst at CICC, said the drop in PPI eases inflationary pressure, but the steady decline also prompts warnings that Chinese manufacturing sector might be entering a period of deflation, a potentially dangerous phenomenon.

Falling prices of industrial products will lead producers to put off investment and production, and suspend purchase of raw materials, said Zhao. As demand from Chinese companies shrinks, the aggregate demand of the economy will be less.

Lian Ping, an economist with the Bank of Communications, said the PPI will gradually go up this year given improving domestic demand and abundant global liquidity.

A turnaround from decline to growth may not happen until the third quarter, said Lian.