China's CPI, the leading inflation index, continued a downward trend in May, spurred largely by the declining food prices.

China's general consumer price index reported a 1.8 percent year-on-year increase in May, a monthly report released by the National Bureau of Statistics said on Monday.

Zhang Liqun, researcher with China Development Research Center of the State Council, the decrease was prompted by steady growth of consumer demand and increasing supply capacity.

The report said food prices rose 2.8 percent year-on-year. Grain prices, however, dropped 1.6 percent, and that of poultry and meat rose 6.9 percent, egg's price reported a rise of 11.9 percent, the highest, and that of aquatic products, up 3 percent, and vegetables, 10.1 percent.

Zhang said the increasing supply capacity of grain has shown a clear impact on the decline of the CPI.

While the industrial CPI has not show an obvious change since there is a great competition among the factories. Zhang said the factories have decreased their profits for the increasing price of raw material so there's little pressure for the CPI to increase.

On the aspect of service price, the government was very cautious in taking related measures so that a new trend of price increasing was checked, he said.

In a word, the trend of CPI shows the overall situation of demand and supply in China's market has been changed and the situation of "demand exceeding supply" has been decreasing.

He said the country should pay attention to shortage of demand in some aspects. "If the CPI continues to decline till next year, deflation might occur."

Compared with the consumer price level in April, the price index dropped 0.2 percent. The report said the consumer price index in cities rose 1.4 percent from the same month in 2004, and that in rural areas, up 2.4 percent.

Wang Xiaoguang, director of Economic Operation and Development Research Office of the State Development and Reform Commission, said if the real estate property keeps hot in next year, deflation might occur. He predicted the growth of CPI in June will be even lower, to 1.5 percent or one percent.

This indicated that the central bank will not rush to raise interest rates, the two experts agreed.

Source: Xinhua