(MENAFN- AFP) The fall in Chinese producer prices eased further in May, data showed Thursday, fuelling hopes a slowdown in the world's number two economy is bottoming out while stabilising consumer inflation also gave authorities room for fresh stimulus.
The producer price index (PPI), which measures the cost of goods at the factory gate, fell 2.8 percent year on year last month, much narrower than the 3.4 percent decline in April and also better than the 3.2 percent drop forecast in a Bloomberg News survey of economists.
The figures come after the government promised reforms to cut capacity in the nation's factories, which has hammered prices and at one point led to fears of deflation, causing a major drag economic growth.
Protracted declines in PPI bode ill for industrial prospects, but May's result fuelled hopes the economy, which is a key driver of global growth, could be reaching the bottom of a painful slowdown.
Prices have continuously fallen for more than four years but the rate has gradually slowed in recent months.
Thursday's result comes a day after trade statistics showed imports fell last month at their slowest rate since October 2014.
While broadly encouraging, they are upbeat enough to provide hope for the economy while also giving authorities the room to unveil growth-boosting stimulus measures.
"We anticipate a further recovery in producer price inflation in the coming quarters as commodity price deflation continues to ease, with a return to positive territory by the end of year now looking likely," said Julian Evans-Pritchard of Capital Economics.
"The upshot is that inflation is unlikely to become a major concern for policymakers this year, allowing them to focus on more pressing issues such as financial stability and structural reform."
Beijing lowered its economic growth target in March at the annual meeting of the rubber-stamp National People's Congress, setting a target of 6.5 to 7.0 percent expansion for 2016.
The economy expanded last year at its slowest rate in a quarter of a century as Beijing strives to effect a difficult transition in its growth model away from reliance on exports and fixed-asset investment towards one driven by consumers.
The consumer price index (CPI) -- a main gauge of inflation -- rose 2.0 percent on-year, the National Bureau of Statistics said, lower than April's 2.3 percent and the 2.2 percent median forecast in the Bloomberg survey.
Month-on-month, the CPI dropped 0.5 percent, which NBS analyst Yu Qiumei attributed to falling prices of fresh vegetables.
"Early in the year, a cold snap hit most parts of China, affecting the production and transport of fresh vegetables," he said.
"As this season's fresh vegetables come to market, gradually increasing market supply, the prices of fresh vegetables has returned to normal," he added.
Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.
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