China's consumer price index (CPI), rose 5.5% in May since the previous year, while the country's producer price index (PPI), a major measure of inflation at the wholesale level, rose 6.8%, the National Bureau of Statistics said on Tuesday..nbsp.
The data are consistent with China News Service's earlier predictions. The hike in food prices is attributable to a rise in vegetable and pork prices after a devastating drought struck the southern provinces where major agricultural production bases are located.
Upon release of the data, the highest this year, experts are pessimistic about the prospect of soaring inflation, saying it will cripple China's economic growth.
Ma Jun, chief economist of the Deutsche Bank, said the CPI will likely peak at 5.9% in June before lessening to somewhere around 4% from the third quarter onwards.
"In order to stifle the inflation, it is highly likely there will be a rate hike by the People's Bank of China, China's central bank, in June or July," said Ma.
Contrary to the CPI readings, China's Purchasing Managers Index (PMI), an indicator of economic activity, showed a continual decrease in May.
Many economists believe it is almost certain that China's GDP growth in the second quarter will slow to 9.5%, a still fast and stable rate compared to other countries.
Mei Yuxin, a researcher from the Academy of International Trade and Economic Cooperation, said that the slowdown is expected after the government introduced a slew of policies to hold down inflation.
Mei's line was echoed by Cai Jin, deputy chairman of China Federation of Logistics & Purchasing (CFLP), who said that although the economic growth and buying prices have slackened in these months, the PMI reading is still within the range of governmental macro-control.
According to Cai, the current situation will not result in a "hard landing" of the country's overall economic condition, and the top priority for now is to prevent demand from falling too fast.
"China's macro-control aims not only to tame inflation, but also as a major measure in China's economic transition," Pan Jiancheng, deputy director of the China Economic Monitoring Center of the National Bureau of Statistics said to the 2011 China Textile Summit on Monday.
According to Pan, a prudent monetary policy, energy conservation, low-income housing construction, and other livelihood projects will be the major investment directions for the government this year.
Under the circumstances, export and consumption, the two major engines of economic growth in the past, will likely fall.
"The pressure of CPI growth will be eased in the second half of this year," said Pan.
Meanwhile, despite droughts in the southern provinces, the Ministry of Agriculture estimates that grain production from the summer harvest is likely to increase 2% to 3% this year given that most wheat production is located in the northern parts of China.
Banny Lam, an associate director and economist at CCB International Securities Ltd., estimated that the summer grain harvest will help stabilize prices of major grain products in the second half of this year.
