CHINA'S inflation in May rose to its fastest pace in 19 months but analysts said signs of a cooling economy reduced the possibility of an imminent interest-rate increase.
The Consumer Price Index, the main gauge of inflation, gained 3.1 percent from a year earlier last month, up from the advance of 2.8 percent in April, the National Bureau of Statistics said yesterday.
The figure has jumped above the nation's target of containing inflation within 3 percent this year and was beyond the benchmark one-year deposit rate of 2.25 percent for the fourth month in a row.
"Inflationary pressure is gathering," said Li Huiyong, an analyst at Shenyin & Wanguo Securities. "Dealing with rising prices should be the top priority for policy makers."
Li said an interest-rate increase was necessary to ease fears of inflation.
Other analysts said the CPI rise was driven by higher food costs after bad weather.
"Price rises may moderate in July and even fall in the following months," said Zhang Yongjun, a researcher at the China Center for International Economic Exchanges, a top think tank in the country.
"This is because food costs drop after production of agricultural products normalizes and the effect of last year's loose credit policy fades."
In Zhang's opinion, the Producer Price Index, the factory-gate measurement of inflation and a harbinger for CPI growth, reached its peak last month when it climbed 7.1 percent on an annual basis.
Li Maoyu, an analyst at Changjiang Securities, said the signs of a cooling economy and uncertainties spurred by the European debt crisis had made an immediate interest-rate increase less likely.
"An interest-rate rise will directly impact on investment growth," Li said.
Last month, China's industrial production grew 16.5 percent year on year, down 1.3 percentage points from that in April.
Urban fixed-asset investment advanced 25.9 percent in the first five months to 6.73 trillion yuan (US$985.41 billion), easing from growth of 26.1 percent through April.
New yuan loans grew more than expected to 639.4 billion yuan last month but dropped from 774 billion yuan in April, the People's Bank of China said yesterday.
M2, the broadest measure of money supply, gained 21 percent from a year earlier last month after a 21.5 percent increase in April.
China's gross domestic product jumped 11.9 percent in the first quarter, the fastest pace in more than two years.
"China's May data paint a mixed picture, with a larger-than-expected slowdown in industrial production, related to investment, but strong exports and retail sales," said Peng Wensheng, an economist at Barclays Capital.
"Based on activity indicators in the first two months of this quarter, we project GDP growth to be slightly over 10 percent year on year between April and June.
"The quarterly path suggests a small downside risk to our projection of 10.1 percent growth for 2010. We expect growth to slow to about 9 percent in the last quarter."