China inflation down from highs

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Higher food prices are a worry for the Chinese authorities
China's consumer price inflation fell back to an annual rate of 7.7% in May, official figures show, as efforts to slow food price growth kicked in.

The decline from April's 8.5% rate had been expected, but analysts warned that the surging price of crude oil posed a continued threat.

Beijing had pledged that tackling price rises was a priority.

Food costs rose 19.9% in May from a year earlier driven by demand for pork, but this was slower than in April.

Non-food prices rose by 1.7% in the period, compared with 1.8% in April, the National Bureau of Statistics said.

Despite inflation slowing, the key Shanghai stock market fell by 3.3% on expectations that there would be a further tightening of credit to stem inflation further.

Lending curb

High inflation increases worries that China's economy may be overheating.

However, despite the government declaring it wants to tighten monetary policy in the battle against inflation, the authorities have not yet increased interest rates in 2008 although there were six rate rises in 2007.

Instead, banks have been told to increase the amount of money they hold in reserve and curb lending to limit credit growth.

Earlier, figures had showed that China's trade surplus fell 10% in May from a year earlier on the back of the surging price of imports such as oil and other raw materials.

But the $20.2bn surplus for May was still up from $16.7bn in April and larger than many had predicted.

The surge of money into the country from exports poses a risk of pushing inflation even higher.

Observers say that a global economic slowdown - which is resulting in richer nations importing fewer goods - may cut China's surplus.

From BBC NEWS