China May inflation to cool, output seen near three-year lows

Tue Jun 5, 2012 7:05am EDT
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BEIJING (Reuters) - Chinese inflation is expected to have cooled further in May and factory output growth is set to come in not far from three-year lows, Reuters polls show, as calls grow for China to take more action to fight its worst economic slowdown in three years.

Analysts forecast annual consumer price inflation to have retreated to 3.2 percent in May from 3.4 percent in April, comfortably within the government's 2012 target of 4 percent.

They say sedate inflation gives China room to relax monetary policy and shield its economy from bigger headwinds from Europe's debt crisis.

"Lower inflation from May onwards will likely open the window for interest rate cuts, which we expect to take place in June-July," Helen Qiao, managing director at Morgan Stanley, told Reuters.

Forecasts for factory price deflation, with the producer price index seen falling 1.1 percent in a third straight month of decline, are underpinning expectations for consumer inflation to stay benign.

China is set to release data for inflation, industrial output, retail sales and fixed asset investment on Saturday.

Europe's worsening debt problems are expected to have dragged Chinese factories into another month of relatively listless performance, with output rising just 9.9 percent in May from a year earlier, a shade above three-year lows of 9.3 percent hit in April.

Fixed asset investment, the second-biggest driver of China's economic growth after consumption in the first quarter, is seen languishing at a decade low of 20 percent, compared to April's 20.2 percent.

Retail sales are seen up 14.3 percent on the year, a whisker above April's 27-month low of 14.1 percent.   Continued...

A vegetable seller waits for customers in her stall at a market in central Beijing June 1, 2012. REUTERS/David Gray