Beijing (AsiaNews/Agencies) – The rise in the consumer price index slowed down a bit in May to 7.7 per cent from 8.5 in April, but inflation remains a major problem because the drop was achieved through government controls on the price of some retail products, notably fuel and foodstuffs, and higher reserve requirement ratio for banks (up again on 7 June). Food prices rose 19.9 per cent year on year last month from April's 22.1 per cent pace.

Despite government controls on energy crude coal prices rose 24.1 per cent last month, up from 20.9 per cent in April; oil increased by 11.8 per cent and ferrous metals jumped 26.7 per cent. Overall state-owned oil companies are losing money.

This runs counter to the producer price index (PPI) which increased by 8.2 per cent in May from a year before after gaining 8.1 per cent in April. It is therefore too early to talk about a counter trend.

To curb hikes due to higher demand for construction materials in the areas affected by the 12 May earthquake, the government ordered local governments to curb "irrational price increases".

“The concern is that record factory-gate prices will pass through to consumer prices,” Shi Lei, chief economist at Tianxiang Investment Consulting in Beijing, told the South China Morning Post

What is certain is that these increases and the cost of energy are gradually eroding corporate profits, especially for high energy users.

Things are changing though as exports towards the United States drop but increase in the developing world. Overall exports rose 28.1 per cent in May (against 21.9 per cent in April.

The United States continues to pressure the mainland to move more quickly to revalue the yuan as US Treasury Secretary Henry Paulson did yesterday, but Beijing has successfully resisted and gone for the gradual approach.

China’s trade surplus was US$ 20.2 billion in May, up from US$ 16.7 billion in April, but is still affected by the price of oil whose imports rose 25 per cent in May. (PB)