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China inflation hits four-month high in May: gov't

BEIJING -- China's annual inflation rose sharply in May to its highest level in four months, official data showed Tuesday, easing concerns about deflationary risks in the world's second-biggest economy.

The consumer price index (CPI) increased 2.5 percent year-on-year last month, accelerating from 1.8 percent in April, the National Bureau of Statistics (NBS) said in a statement. It was the highest figure since January also saw CPI rise 2.5 percent.

The May figure matched the median forecast in a poll of 15 economists by the Wall Street Journal and was mainly driven by rises in food costs, particularly a 20-percent surge in fruit prices, the NBS said.

Despite the rebound, CPI was still well below the 3.5-percent annual target set by Beijing in March. April's price decline had raised concerns the Chinese economy, a key driver of world growth, faced deflationary pressure.

The news also comes a day after the People's Bank of China announced details of a cut in the amount of cash certain lenders must keep with the central bank — the reserve requirement ratio — as part of a limited stimulus to boost spending.

“Today's inflation data confirm our view that broader price pressures are stable and that concerns about deflation, sparked by a short-lived fall in headline inflation in April, were overplayed,” Julian Evans-Pritchard, an analyst with Capital Economics, said in a research note.

The producer price index (PPI) — a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI — also improved to a decline of 1.4 percent in May, the NBS said in a separate statement.

That was up from a decrease of 2 percent in April and marked the highest level since December, when PPI was also minus 1.4 percent, according to official data.

Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up. In contrast, as Japan has seen, falling prices encourage consumers to put off spending and companies to delay investment, both of which act as brakes on growth.

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People buy their meals during their lunch break in Beijing, Tuesday, June 10. Higher food prices have pushed China's inflation to a five-month high of 2.5 percent. (AP)

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